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Episode 19 – DASH and Masternode Coins

If you happen to be a subscriber and remember back to Episode 12, which was titled “ROI Coin”, you will remember that episode as a sort of discovery of what I called a relatively “rare event” wherein the coin was released without a so-called ICO event, and which was released as a mineable coin that would grow organically over time. Well, since that podcast I’ve learned a few things – 1) these types of coins are not quite as rare as I made them out to be in that episode, and 2) these types of “non-ICO” coins, while they can certainly be characterized as such, are by no means all the same, and not even structured precisely in the same way. They share similarities, but there are important nuances, which you should be aware of as you explore this segment of the crypto currency space. And finally, just like a typical ICO, it is absolutely critical that you do every bit as much due diligence before investing a penny into any of these, however, the due diligence is rather different as you will see.

DASH – the ancestor of Masternode Coins

The other aspect of these types of coins is one that is, at least to me, very compelling for a number of reasons. I’m referring to the Masternode concept. First, when we are discussing masternodes, I think it’s only fair that we give credit where credit is due, and this would be to the DASH project that was, I believe, the pioneer of the masternode concept. And in keeping with this podast, we are going to aim for a foundational understanding. It should be understood that at the time of the DASH project, the number of full nodes running Bitcoin had decreased in what appeared to be a trend. Needless to say, the price of bitcoin had not yet spiked to astronomical levels, and so the point of the Masternode in DASH’s view was to provide more incentive for someone to run a full node. And so they invented the idea of a node wherein the node operator puts up a bond of collateral to operate the node. In the case of DASH, it was 1000 DASH tokens. Along with the collateral of the node, there comes a block reward. You are probably familiar with block rewards from Bitcoin – but in DASH there is a two-tiered networks, with the miners creating new blocks and the masternodes providing specific functions – in the case of DASH that would be PrivateSend, InstantSend and some governance functions – for instance, voting. In this type of two-tiered network, the block reward for every block is split between the masternodes and the miners – 45% and 45% respectively – with 10% going to a decentralized treasury system. In this way the masternode can be used as a sort of annuity that pays regularly, without sacrificing capital. And this capital – the 1000 DASH is never forfeited – but it is required to run the node – and if any of the coins are sold, then the masternode is removed from the network, and the rewards stop. So this collateral system provides two critical functions – it incentivizes participants to run a node – which as in all blockchains, means a healthy and secure network, and secondly, it provides a reduction in the volatility of the currency. The first thing we should take a moment to mention is the success of these ideas. First, as an investment. In January of 2015, which is about 36 months ago, a masternode for DASH cost, and was worth $1,262.00. On year later in January of 2016, it cost and was worth $14,447.00. One year after that – as of yesterday, it was worth 1.07 million dollars. By all accounts, this makes the run-up to Bitcoin seem pale in comparison. It’s successful in ways that other currencies are not. For instance, because of the 10% so-called “treasury” fund, there is a monthly budget of about $8million to fund various projects. And as you might imagine, the masternodes are the ones which vote on the allocation of project funding using this treasury. In this way, DASH is a community quite like any other in the crypto currency space.

Another thing to understand about DASH is that it is the ancestor, if you will, of many of the plethora of masternode coins that now appear on a weekly basis. So understand how DASH works and where it came from will help you understand most of the coins that we will discuss on this episode.

OK, so now you know understand what a masternode is, and I would venture to say that most of the people listening to this podcast are not going to be able to purchase a DASH masternode after listening to this episode, but you might be interested to know that the popularity of this class of coins that are springing up weekly are driven by the availability of masternodes, especially at early stages of the coins development.

Masternodes and Accessibility

Now before I talk in detail about the lifecyle of how these coins are released and work, I want to explain why I’m doing this episode and why I’m extremely interested in these coins – first, I will recognize now and later in this episode that in this space, just like the ICO space, there is a high risk profile and a fair number of outright scams. But there are also plenty of coins that are working out well for people – and here is why. With the recent actions of the SEC, we are starting to see two trends in Initial Coin Offerings – and I’m talking about the token sales now – – ICO’s – the first is a barring of United States investors – the second is a shift toward private sales, and SAFT-based agreements to accredited investors only and with high minimum investments. Just last week we saw the Bee Token sale to accredited investors with a 50 ETHER minimum. This is a trend – and this class of coin does not have that characteristic at all because with a rare exception of masternode auctions I’ll mention in a minute, these coins are not direct sales at all. They are accessible to just about anyone who has the interest to participate. And so for me, and I think you’ll agree after you hear my own personal story about one of these coins, that these coins represent a way for everyone to get involved with crypto-currency in a relatively low-risk way.

Before I talk about any specific coins, and before I tell my very own story of dipping a toe into this space, let me talk about the typical lifecycle of one of these coins:

It starts out with an announcement on BitCoinTalk – and if you remember the ROI Coin announcement, that’s about how they go – it’s usually a POW/POS, which allows both miners and people to stake coins, with the promise of masternodes. The mining algorithm is established, which very often drives the audience of the miners. For instance, on a coin last week I read a comment like “Another scrypt coin for rich asic miners” which was most likely written by someone who is mining their GPU or maybe with a few of them. The other thing that is mentioned in the announcement is how many coins are pre-mined. This is usually 5% – if it’s more than that, it raised some eyebrows, and that’s one of the ways in which these coins are judged. A high pre-mine will attract criticism, and will cause suspicion, since the value of the stake of the original developer may provide too much temptation to continue the project if the value increases pretty quickly.

The next step is for pools to feature the coin so that miners can create coins and introduce tokens into circulation. At this point, the concept “circulation”, however, doesn’t have much meaning because the coins are not on exchanges yet. But mining is important because it’s the only way that coins are generated. This step is fraught with peril, however. The biggest problem here can be when the developer makes a mistake and allows a large percentage of early coins to be mined by just a few or even one address. This was the near-fatal mistake of B3 coin, and you might be surprised that this was a mistake with DASH – where fully 10% of the entire supply of DASH coins was mined in the first two days, by just a few Amazon ECS customers who were mining in the very beginning. This was attributed, by the way, to a bug in the code that surfaced when they cloned the code from LiteCoin – and the developer offered to start completely over, but the community said – nope, don’t worry about it. Let’s move forward. Surprisingly, they did. Interestingly, the BitCoinWiki site has a page up named “Comparison of CryptoCurrenies” that states that because of this fact the Master Node algorithm for DASH has technically been in a failure node from the beginning. And it was just last week that I found an announcement page of one of these types of coins which was only a few pages – when I read all of the pages I discovered that the developer had made the same mistake, apologized all over himself, shut down the bitcointalk thread and said – sorry, I’ll try this again soon. But it’s not just bugs that are the problem – it’s the likes of NiceHash. What a coin needs at this early stage is a distributed set of miners if at all possible – the ideal situation would be many miners receiving about the same amount of reward. Of course, that’s impossible, even on the so-called ASIC resistant coins, because there are plenty of people that have phenomenal GPU rigs that have and insane amount of hash – but this is a real problem, because if just a few addresses obtain all of the blocks, miners will get discouraged pretty quickly. The trick in this stage is therefore to attract a lot of miners without getting blasted by the big guys.

The next natural step – and by the way, not all of these steps are completely linear – they can be done in parallel – is to introduce masternodes. Masternodes usually have a high number of coins that must be used as collateral – 1,000 usually being the minimum, but some coins have as many as 10,000 coins. This ensures scarcity and also provides value. This step is usually conducted in parallel with the next stage I mention, which is getting listed on exchanges, so that people don’t just have to mine for masternodes – because frankly, that can take a long time to mine 1000 or more coins, depending on your equipment. Generally, this step consists of releasing code and instructions for installing a masternode, but on the Lizus Discord channel last week I noticed that the Lizus team was auctioning off masternodes – well, not precisely that – I have to be careful because they came under fire for this – so I’ll be very specific – they were auctioning off blocks of 1000 coins (a masternode required 5000) which could be used to create a masternode. And the price of these blocks of coins, if you did actually want to run a masternode for that coin, was about $65,000 for a masternode at the price of BitCoin on that day I saw the auctions. This, by the way, is unusual as far as I can tell, and to be honest, I think it’s a bit unfortunate, because a great benefit of these coins is the fact that they are accessible to those who don’t have $50,000 to drop on a sketchy investment. I can only hope that this doesn’t become a trend for all of these coins – although, even if it does, there are way to participate through a shared masternode service which I’ll explain in a moment.

The next step – which as I said is actually a parallel step – is getting listed on an exchange. This is pretty much critical to the success of a coin, because it allows people to participate and construct master nodes without having to mine for coins. The challenge here is two fold – first, the big exchanges, like BitThumb, and Bitfinex and the other enormous exchanges will not list these new coins. And there are not a lot of stable minor exchanges that will list these coins. Those that are relatively stable, like Cryptopia, charge high fees to list the coins. To give you an idea, two weeks ago I was on a Discord server of a coin that what complaining that Cryptopia was gauging the coins by charging 5 Bitcoin to list their coin – but a week later the price had risen to 7 BTC, and three days ago I heard the figure 10 BTC – and yesterday, and this may be a rumor – I heard that they raised the listing fee to 30 BTC. Just to be clear, 10 BTC is about $140,000 right now. Thirty approaches half a million dollars. That’s a listing fee. And when asked why they were conducting these 1000 coin auctions last week, Lizus explained that they needed the money to be listed on exchanges. But getting on an exchange is a life-or-death milestone for a coin. I would say that if you go poking around you’d find a graveyard of coins that never quite made it an exchange. In fact, you don’t even have to go far – just go to deadcoins.com and you’ll see what I mean.

For masternode coins, a critical step is to get listed on the masternode sites. There are about a half dozen main ones – masternodes.pro, masternodes.online, mnrank.com to name a few. This is very, very important because those sites list the return on investment, which is the primary reason for participants to get involved – the ROI. Speaking of ROI – it’s important to understand that in the beginning of most coins, the ROI tends to be large, and that’s mainly to attract attention as well as to establish strong incentive to create a healthy network of masternodes. If you remember by episode about B3, this is a bit of a delicate dance here. You want a high ROI to attract masternodes and participants, but you don’t want it to be so high so as to create massive inflation to destroy the value of the token. And you should understand that the ROI will naturally decrease over time for these. Thus, when we talk about the strategy of participating in this space later in this episode, remember that fact. These masternode site listings, however, are almost as important as exchange listings when it comes to the success of this type of coin.

The next milestone after the exchanges is to get listed on coinsmarkets.com. This happens after a certain amount of trading volume, so this is an obvious linear step in that a coin must be listed on an exchange in order for coinsmarket to list them. This is a significant milestone and you’ll see the result when I tell my little story coming up.

So, those are the high-level steps – if a coin can make it through these steps, there is a high likelihood that the coin will last some time – long enough, perhaps, for you to achieve a return on your investment.

How i turned $150 into $4000 in Three Weeks

Ok, so now to my story. This story is completely factual, with no exaggeration – no made up numbers. This is precisely how it played out. First, I’ll explain that I’ve been eyeing this space since the ROI coin and B3 episodes, which aired in November. At that time, there were about six or seven masternodes that were going for about $3 – $5,000 – which, by the way, are now work multiples of that. Coins like INNOVA , VIVO and the like. And in the last week of December, after I had returned home from outside the country, I was ready to give it a shot. But I was still a little bit skeptical, especially after B3, so I decided to risk a much smaller amount. And fortunately, you can do that.

Ghostminer and the Shared Masternode Service

I first invested this by finding what is known as a Shared Masternode Service. The one I found was by Ghostminer. A shared masternode service is simply someone who collects enough tokens for a given coin for a masternode, fires up the masternode and then pays out according to the percentage that each participant invested. In this case, Ghostminer collects a 5% fee and pays daily. And so using this service I sent 50 Polis tokens to Ghostminer for a 1/20 seat of a 1000 masternode for Polis on December 27, 2017. At the time the price of Polis was about $3.00, and a masternode was $3,000. My investment was about $150. Then, between 12/29 and yesterday, I received an average of 3.65 tokens per day in return for my “stake.” So now I have the original 50 tokens (well, I don’t have them – the Ghostminer masternode service does), plus a little over 49 in my own wallet. So that’s about 99 coins. But two or three days ago they were listed on Coinmarketcap (stage 5 of the journey above) and now the price is $49.80 as of this moment – at least shown there. The only exchange that works right now for them is stocks.exchange , and I can tell you that this exchange barely works – but anyway, if I wanted to buy some now it would certainly cost me about $49, one way or another. That makes my original investment of $150 on 12/27/18 worth, today, about $4,900. At this point, I’m free to either send Ghostminer the 50 coins I have earned for a second seat of Polis – OR .. and this is probably what I will do – I can instead keep the 50 coins on my shared seat, and receive the 2 or 3 each day, and trade the other 50 coins for a seat on a newer, possibly less expensive coin in the hopes of repeating this. This is how people use Share Hosting services to work their way up the chain of masternode investment. Naturally, I’m also free to cash in all of the coins and take US Dollars. But as for me, I don’t think I’ll do that just yet. The most important part is to make sure to find a shared masternode service as honest and professional as Ghostminer’s. You can find a link to the Discord channel on ico41.com on the post that is associated with this episode.

Now remember – this started with about $150. So this is what I mean that along with the concept of a Shared Masternode service, this is the type of crypto currency market that allows almost everyone to participate.

Buyer Beware and Due Diligence

But I want to once again emphasize that this space has its shares of scammers as well. First, the shared masternode service is very important – I have found Ghostminer to be absolutely trustworthy, and since everything is conducted in the open on Discord – every payout is announced – I can tell you that many multiples of transactions have been handled without any complaints from this service. So be sure to find someone as trustworthy as Ghostminer if you enter this space using a shared service.

Secondly, you need to read every post on the Bitcointalk Announcement for the coin, and join the Discord and Telegram and read and read and read. You can visit the website, but that source will not be as useful as listening to people interact and reading the community postings. There will most likely not be a Team to look at, or a company – there will just be a developer. And I have seen coins where the developer ran away from the project after people invested in masternodes, so be very careful in this space.

Thirdly, you must watch this carefully – there will come a time when the masternode will not pay like it did in the beginning, and then you have to decide whether you want to cash out. Also, the valuations of these coins have very often been described as pump and dump. Therefore, you may wish to take that into consideration in the timing of your investing.

Fourth – to choose the coin, head over to masternodes.online and first sort by ROI. Then look carefully at the number of masternodes, the return on investment, the number of coins for a masternode, how long the coin has been around – and then if you are using a shared Service like Ghostminer’s, make sure the coin you are interested in is supported by the service. Remember to do all your due diligence, especially if you are spending a significant amount – which, as we all know, is relative. As of today, the top coins on that site are ARTAX, POLIS, which I see has fallen about 14% in a day. Then there’s NUMUS and MUCOIN. Of course, next week or the week after that we will see a whole new list, I’m pretty sure.

Fifth — this is not easy. There is nothing easy about any of this. I may have made my experience with Polis sound easy, but it wasn’t – be prepared to deal with Wallet issues, If you are technical enough and have the money and you want to run your own masternode, be prepared for a lot of technical steps and possibly troubleshooting. If you are purchasing the coins, be prepared for massive exchange issues – there have been nightmares with exchanges lately. Cryptopia was shut down to new registrations because they had reached their limit – coinsmarkets – an important exchange for these small coins, has been completely down for about three weeks now – another new Russian exchange called stocks.exchange is having huge problems and has been labeled a scam. So getting these coins may not be as easy as you might think. Many people characterize this as passive income – I personally don’t see it that way, but that could be because I’m mainly a hands-on kind of person.

CRYPYTK Coin

Introduction

For this week we will focus on an upcoming ICO that may not be terribly far along in terms of the actual token launch, but enough work has been done on the whitepaper as well as the evolution in their thinking that we have enough material here to warrant a good look.

Now, in preparation for the first project under discussion I need to cover a few things that the whitepaper presumed pretty decent knowledge of – namely, enterprise-level security concerns and cloud-based file storage. When technologists talk about “Enterprise Computing,” we are making an effort to distinguish between consumer-level computing and the computing requirements of larger companies. You might imagine that the needs and especially security concerns for let’s say a modern first-world family consist of the ability to protect their financial data, as well as the files that they hold important to them – and trust me when I say that in a family of four kids, the 16,000 or so digital photos and/or videos of your kids from birth to teen-age years are pretty important. And it’s also fair to say that there is quite a lot of overlap between these security concerns at the end-consumer level and many small businesses. Because a very large number of businesses, both in the United States and elsewhere, are run not much differently than a large family – or even by families, and so the security concerns there are quite similar. It really gets different when we talk about the security concerns and the file storage concerns of the so-called Enterprise, because now we are talking not only about a significant degree of greater liability, but also the targets of these enterprise companies are much, much larger. It really reminds me of a movie that I just saw last night – named Dunkirk, which was a week-long incident that happened in the early part of World War 2, where there were about 300,000 allied soldiers essentially stranded across the English Channel on a beachside town in France, with the enemy forces completely surrounding them and the only way out was by sea – specifically across about 20 miles of English Channel. Well, a big part of the plan to rescue these 300,000 soldiers was to use over 800 small boats mainly because it’s harder to attack a lot of small boats than it is to attack a few enormous destroyers or troop ships. So in Enterprise-level security analyses, there is a concept of “attack surface” – or exposure of a given asset is X, what happens when you distribute the pieces of X across many points, such that you must attack all points in order to pull off a completely successful attack? That is an important point to understand for this ICO – and another is the role of cloud computing in the Enterprise. Cloud computing, by the way, simply the ability to use business features and functions – everything from storing important files, to running complex business software not on servers that your company has to pay for and maintain, but services provided by large companies such as Oracle, Microsoft, Amazon, Salesforce, Google, and a few others. So the Enterprise took a little while to get there, but the big news is that they have really started to embrace the so-called Cloud. They are using cloud-based services for everything from large-scale file storage, to Customer Relationship Management Systems, to Enterprise Resource Planning software, and Supply Chain Management systems – all in the cloud, where the files, the databases, and the front-end software is maintained and provided by others. This whitepaper also presumes you understand all of this, and so in the interest of efficiency, I am providing you with this information just in case you don’t happen to know the significance of it. Now, let us get started with the analysis of our ICO for this week…

CRYPTYK

That would be spelled C-R-Y-P-T-Y-K and cryptyk.com is the place to go for more information. There are a few concepts that CRYPTYK makes in the introduction of the whitepaper:

Although Enterprise-level data storage is cheap, enterprise-level security is most definitely not. In fact, it appears to cost roughly between $40 and $80/user/month.

Secondly, these costs are not all that effective. That despite the fact that the Cyber-Security industry is approaching about $100 Billion in value, Security breaches, according to Forbes magazine, are now costing ten times that per year now, and will approach $2 Trillion by 2019. Needless to say this is a major concern for enterprise companies.

Thirdly, one of the main reasons for this failure is the attack surface that we mentioned earlier. This is true for both in-house as well as cloud providers. And the centralization of cloud-based systems makes cloud services particularly vulnerable.

The answer? Well, as you might imagine a big part of it is decentralization. Like the Dunkirk movie, except that the whitepaper shows this in simple mathematical formulas, the sharing of assets provides a much more favorable attack surface using two concepts:

A blockchain network with a certain number of trusted nodes.

What they call “Multi-Cloud” vendor storage. That would be creating distributed access to multiple cloud vendors, such as Amazon AWS, Microsoft Azure, IBM Cloud, or any other competing cloud-based system – everything from Hitachi to Nutanix.

If you think about that, it’s a pretty powerful idea – the concept that if what is required to obtain access to data that exists on three vendor sites, but the compromise of any one or two of these sites provides data this is worthless without compromising all three, the odds drop pretty dramatically that all three vendors would be simultaneously hacked. That’s the high-level concept and we’ll dive in more when we analyze the whitepaper.

The Company and the Team –

What is interesting to me about Cryptyk is that as a company the founder, who is a physicist, has been building the company for some time before considering the ICO has a means for investment. In 2015, the company described itself as a quote “paranoid bunch of quantum physicists, security experts, software coders and ethical hackers who are at war with all criminal hacking organizations.” So, a good set of roots. If you examine the backgrounds of some of the team, you find a wide and interesting group with many collective years of experience. The chief architect, for instance, not only spent years in overseeing development of complex automation systems on wall street, he also lived on a sailboat for ten years and plays one hell of a mean blues harmonica. The other members of the team, which range from corporate lawyers to systems engineers and architects, are impressive in their respective fields. However, I would be remiss if I didn’t point out that the core team assembled is not especially strong in blockchain programming experience. On the core team, there is one person listed as a blockchain expert, but from what I could find, his output consists of a well-written blog post September of 2017 that also made its appearance in the whitepaper. Where they make up for this, however, is in the set of advisor’s they have put together. There you will find several individuals who have some extensive experience in blockchain – although no core developers. I should recognize two things here – 1. blockchain developers with long histories of blockchain-specific development are hard to find and 2. that makes sense, simply because this is a very new technology. Fortunately, there seems to be a keen interest in developers who are coding in traditional languages such as C++ and Java to look at blockchain-based technologies, so as time passes, the Cryptyk team should have a better time of it as they project begins. The company has been operational as a cyber-security firm and when looking at the history of the website we see an evolution of thought. In late 2016, they promoted ideas of a secure cloud technology and began to formulate products for secure hybrid cloud enterprise networks. If you examine the old websites you can pretty easily draw a coherent line between the thoughts expressed a year ago to the thoughts that are expressed in the whitepaper. What it shows to me is an existing company that learned about blockchain technology and had a sort of aha-moment and was able to successfully reframe their offerings to take advantage of distributed technology, which retaining some of the ideas from the past.

The Whitepaper

There is a lot to like about this whitepaper. First, it does a good job of framing the problem, which we have described in the concept part of this analysis. Secondly, it points out problems that absolutely do exist, particularly latency experienced with blockchain solutions, and specifically how this latency is simply unacceptable when using cloud-based storage in real-time applications. An example of what I’m talking about is if you have ever used a system like Google Docs in real time, collaborating with others. In this case, you have several clients interacting with a single file, in real time. There is no way this can work with network latency, which I’m going to define in this case as anything over about 100 milliseconds. That means that no more than 100 and certainly not more than 200 milliseconds can transpire between the time you type a letter, and your collaborator types their letters, and those letters show up for both of you. That’s 1/10th and 1/5th of a second, respectively. That’s an example of using a real-time cloud service that both stores the file and also presents what is known as a functional application layer – namely, the document editing software that is essentially a word processor. The authors correctly identify the problem wherein current file storage systems using blockchain cannot be used for such as system, since the latency is sometimes measured in seconds or even tens of seconds – thus making such an instant system unusable. Yes, it would be usable for long-term backup of files, where retrieval is occasional, but attempting to run an application on a distributed blockchain system is a problem.

However, blockchain systems are inherently more secure than centralized cloud systems, because of the attack surface benefit you obtain as soon as you start to distribute the information in the form of nodes. The slight problem here is that as in any classic blockchain system, more nodes means more security – but it also means more latency. This is because in a blockchain that must establish consensus among nodes for truth – the foundation of blockchain in a way, requires that those nodes talk to each other – a lot. And agree. And that communication and agreement – to vastly simplify it – costs time. This whitepaper does a good job of defining and showing the so-called sweet spot between the number of nodes and latency. It turns out – at least in the investigations they have performed, that this sweet spot lives right around 5 nodes to provide about 200 milliseconds of latency, which is just fine for real-time editing applications and immediate file storage retrieval. And best of all, with just 5 nodes operating, the attack surface is reduced by 90%, since there the reduction in attack surface through distribution – remember the Dunkirk analogy – is quite powerful – logarithmic if you look at in terms of a graph. The specific use case for this scenario is to use these nodes in a way that effects the distribution of multiple cloud providers – such as Amazon, Google, Microsoft, and others.

However, those of you who have followed this podcast might remember some discussion we have had about the security fundamentals about blockchain and the so-called Sybil attacks and 51% attacks when collusion exists between nodes. With a blockchain network of about 10,000 nodes like Bitcoin, this is very, very hard to achieve – and in fact never has been achieved. But if you believe, from listening to this podcast, that such an attack would be much, much easier with a network with 5 nodes, you would be absolutely correct. To meet the security vulnerability of this concept, Cryptyk has come up with several concepts:

The first is a consortium-based, permissioned blockchain. We have talked a lot about this, because we are seeing it a lot in whitepapers, and because it’s clearly seems to be the result of some practical thinking when it comes to the deployment of blockchain in the enterprise. We see the health industry demand it, the Hyperledger project uses it, banks are using it, and now we see it here. Essentially, fewer nodes can be used if they are trusted, with a good deal of layers to establish and proof.

Cryptyk has created several interoperable components based on several different concepts – the Vault, which is distributed multi-cloud storage, then Passport, which is a private, permissioned blockchain that governs user access and a ledger to keep track of the file shares on the Vault, then Codebook, which is a decentralized data map for internal data and file encryption key storage. There is also a core “backend” engine that is responsible for about 9 major functions that allow the various components to interact and maintain security and meet the challenges of the major attack vectors, such as external threats, viral threats, internal threats, operational failures, and intercept threats.

What is interesting about this ecosystem is that enterprise customers are able to select the various components they wish to use. For simple, secure, file system backup, perhaps just the Vault service would be chosen. Then, as more robust security is required to deal with man-in-the-middle attacks or internal threats would make use of the permissions blockchain (that’s called Passport) or the database map (known as CodeBook).

The Network / Technology

The name of the token is to be CTO, and the blockchain described will be the basis for one of the components of the ecosystem named Passport, which is designed as a private, permissioned blockchain. The consensus mechanism is a bit unique in that there is a consensus algorithm described as “proof of security.” Proof of security consists of a function of no less than 5 other proofs. These proofs are Integrity, Confidentiality, Access, Posture and Compliance. There are brief descriptions of these, but there are no specific details about how any of these proofs are achieved. It is mentioned that there are CTO miners, so we might presume that these could be forms of proof of work. But as an example, when you read Satoshi’s bitcoin whitepaper, proof of work is clearly described in a couple of paragraphs and references earlier work known as Hashcash. The fundamentals are covered – starting with the importance of a timestamp, and then with a description of how the nonce is found. Here we don’t have any details, but since there is some time between now and the token sale – we aren’t even quite sure how much time – there should be time enough to ask those types of questions.

As for the management of the token and the way in which it is used in the network, this is spelled out pretty well, as well as other details, such as how the system will interface with providers like Amazon Web Services, Google, and others that provide cloud solutions. Central to the system is a proprietary exchange, which will effect the flow of inbound coins of various denominations, such as ETH, BTC and of course CTO. This exchange will allow customers of Cryptyk to purchase services using CTO and will allow those cloud service providers to be paid in fiat currency as needed. There is something called an Incentives engine which is funded by a non-profit organization that receives a third of the proceeds of the token sale , and which will create a pool for partner incentives and other initiatives. I should mention that you can sign up at the cryptyk website as a partner – even an open-source partner, and it’s mentioned that projects could be funded in varying amounts between $5K and $100K. This reminds me of the fund that was planned for the Ambrosus token sale with what they called the Farmer’s Fund for small farmers in undeveloped nations. Pretty interesting.

The Token and the Sale

The website that is intended to provide information about the token sale does not yet exist. When you visit cryptyk.com and click on the link for Token Sale, you are directed to www.cryptyk.io but the message is that the website is under construction and coming soon. Fortunately, though, the whitepaper has a few details. Essentially, it appears that 750,000,000 tokens will be issued, and the price of a token will be ten U.S. cents each. This implies a cap of $75,000,000. The whitepaper an even three-way split between what are described as “investors”, Cryptyk, and the Non-Profit Cryptyk Foundation. For an ICO, it’s a little unusual in that the $25 million dollars labeled as “Cryptyk, Inc” is described as “ .. reserved for the shareholders of of Cryptyk, Inc. who can slowly exchange their equity for tokens over a two to four year vesting period (depending on whether they are founders, investors, advisors of employees.) I am going to take a wild guess here and presume that as we get closer to the ICO, that this language will probably change. I say this only because I’m not sure how this sort of language holds up in the current climate with respect to a token offering labeled as a security by the Securities and Exchange Commission. Of course, we don’t know the details of the token offering – so it’s quite possible that this company will file with the SEC as a security – so who knows. This could be another question to ask the company as we get closer to the token sale launch.

Community and Response –

There is actually little or no community involvement with this ICO – so far, anyway. For instance, there is no announcement on BitCoinTalk. There is nothing about them on Reddit. There is no code on GitHub. There is no slack channel, no Discord or Telegram Channel. I realize, of course, that this is quite early – since there is only a whitepaper. They do mention that the token sale will happen in “early 2018” but I believe they have a little way to go before they might be ready to attract the kind of attention that will be required to successfully launch a token sale. When they get these communication channels open, it might be easier to ask the questions that we may have as they move closer to launch.

Business Viability and Possible Gotchas

In the whitepaper they mention a price of about $20-30 per user per month for a full suite of file storage for 1 TB of user data, plus all of the surrounding security mechanisms and dashboards and various functionality to ensure a much higher degree of security that can be had by current cloud providers. I would say that if they can, in fact, provide this level of security along with additional front-end application-layer functionality, then they will be able to compete in today’s marketplace, simply because enterprise companies spend much, much more than that for security that is clearly not working. So to the extent they can make risk managers and CIO’s CTO’s and CEO’s more comfortable, they should have a ready market.

A good thing I see from a business perspective here is that this is a company that understands and values partnership. There are several ways in which to partner with them, and from archived web pages we can see that they have felt this way for years. Frankly, you don’t see that a lot with ICO’s these days beyond a page of icons showing various companies, probably because of the success of recent ICO’s have proven that you don’t necessarily need partners to successfully launch an ICO and collect millions of dollars. But this company has sign-up forms and descriptions of the benefits with partnering with them. From a business viability perspective, this is a good thing to see.

Final Takeaway

My final takeaway with this ICO is that the whitepaper is definitely worth reading because it seeks to address not only some major issues that enterprise companies face, but also with existing deployments of file-based blockchain deployments. I certainly like some of the ideas expressed, and I think a lot of the concepts are quite valid and would be quite successful if deployed and adopted. On the other hand, it is clearly early in the process, and I think that the final verdict will be a bit more clear when we get closer to the token launch. This will be especially true as the communication channels open up. So I would recommend keeping and eye on this one, since the ideas are sound and it will be interesting to see how their sale goes off as well as the community response, once they start engaging with the community.

INS Coin

Introduction and the Bitcoin craze

This week I’m back to the original format in hunting for interesting ICO’s that are upcoming and will also spend some time reviewing an ICO that has been out for a little while. Before I do this, I’d like to ask you to indulge me for a moment, since I have to talk for a few moments about bitcoin – I mean, how can I not, right, given what is going on with this coin? So last week, as I was producing the podcast, I was eyeing the price for a single bitcoin as it crept up to $10,000 – I think it was at $9,800. There was no doubt in my mind that it was going pierce the $10K window, because with what traders refer to as a sort of parabolic pressure which almost always pushes through the natural ceiling of a trading lever. And so $10,000 for the first time – it would be almost impossible for it not to. But I didn’t expect it to smash through $10,000, sail right through $11,000 and then stay there, and in fact right now is marching toward $12,000. So this is a significant event that so many people are talking about and from so many positions that I want to spend some time on it this week.

First, let’s take a moment to step back and reflect on how incredible this is from a historical perspective, because yes, I recognize that in the 17th century the world went a little crazy for tulips, and less than twenty years ago we saw the Internet bubble swell and pop, but I would submit that this is something that is a bit different for a couple of reasons. First, it’s different, just by the mathematical scale alone. And the best way to express this, in my opinion, is with a true story that took place just a few years ago. This story takes place on the BitCoinTalk forum – yes, that’s the same one that we mention in every podcast episode, and is arguably the best resource if you are looking for hundreds and hundreds of crypto-currency experts – these early, early adopters. This story begins on May 17th, 2010. And there’s this guy named Lazlo Haynecz – a bitcoin programmer living at the time in Jacksonville, Florida – who announces that he is hungry willing to pay 10,000 bitcoins for a couple of pizzas. And he’s pretty specific about the toppings, and he also explains why he likes pizza – it was a charming sort of post in the early days of bitcoin and is was offered as little more than – hey, here’s a cool idea – let me buy some pizzas with bitcoin, which until that time wasn’t really being used for transactions like … pizza. And so, because no one had ever done anything like this before – that is, no one had really bought anything as tangible as a pizza before, it wasn’t as easy as you might think. Three days later, on May 21st, he posts “So nobody wants to buy me pizza? Is the bitcoin amount I’m offering too low?” And he takes a little flak – people are asking “Are you getting hungry or do you just really like pizza?” — because at that time it wasn’t even easy to construct such a transaction such as this. And Lazlo says, “I just think it would be interesting if I could say I paid for pizza with bitcoins.” And so about 10 hours later on May 22nd, 2010 he posts “I just want to report that I successfully traded 10,000 bitcoins for pizza.” And he posts a cute picture of his one year old daughter reaching up for the pizza. At that moment, the price of bitcoin was more or less established – or at least practically speaking. And that price, since the pizza was worth about $25, was ¼ of 1 cent. Now it’s true that Lazlo was a developer, and a very early miner, and he probably had many, many bitcoins and so he could afford 10,000 bitcoins for a couple of pizzas, but the math, any way you look at it, is irrefutable. This commodity, as it is referred to by the US Government, went from a value of ¼ of 1 cent to 11,000 , or 44,000 percent in 2741 days. Which if you do the math is something like 16% each and every day for all of those days in a straight linear graph with no compounding. So the math is one reason why it’s different., because even the infamous tulip mania saw rates of return of a few hundred percent. The Internet bubble as a whole, from January 1999 to March 2001, saw an increase of about 500%. Those two pizzas? At the time of this podcast now represent a value of $55,000,000 each.

What I’m finding interesting at the moment are the reactions we are seeing. Especially from the financial community. There was an interview on Bloomberg news last week when Bitcoin hit $10,000, and the host was talking with both Michael Bloomberg himself and Nobel Laureate Joseph Steiglitz. I’ll just say that it was simultaneously amusing and painful to watch these guys squirm their way through the interview. First of all they were seriously rattled – I would even say offended by this event. It was turning their world upside down – at one point Steiglitz just said “It ought to be outlawed” and kept reiterating how it was used primarily to circumvent – he didn’t say what precisely – he just used the infinitive of the verb – to circumvent I presume he was referring to the fact that the currency is sometimes used to make illicit transactions, but maybe he meant circumvent the entire financial infrastructure that exists to keep financial control – and incidentally to extract fees at every step of every transaction that passes through its sacred halls. In that case he would be absolutely right – yes, Mr. Steglist – this, in fact, is the point, not a reason to run the other way. And while I would certainly admit that the current fees for bitcoin make it impossible to buy things like coffee and even a t-shirt sensibly, I would also like to ask how much the international transaction fee would be to move the equivalent of 10,000 US dollars from let’s say, Los Angeles to Mexico City using the banking system and how much would it require using bitcoin? Well I can tell you the fees to the banking system – it’s about $500. Bitcoin? Well, bitcoin users are howling in protest when the transaction fee reaches is $15. And that $15 fee is the same if it’s a $16 transaction or $16 million transaction. So that’s where bitcoin – or rather I should say, blockchain – makes sense and that’s one reason why I believe bitcoin and its relatives are here to stay, no matter how uncomfortable it makes Nobel laureate economics professors and billionaires who made their money through maintaining centralized systems. And by the way, before I step off this soapbox this week, I just have to say to these two guys and others – spend some of that billionaire or Nobel Prize brainpower and read about the protocol. OK? That was, to me, the most embarrassing part of the interview. These people who are so outraged by this barely understand the most basic concepts of it. Just listen to that interview and you’ll see what I mean.

Okay, that’s enough passion out of me this week – look, I have no doubt that there will be a day of reckoning in terms of price of bitcoin, because there has to be a limit of some kind of limit as to who will continue to buy bitcoin at these rates, and human nature and the experience of trading any instrument dictates that the price will eventually begin to fall as people begin to take their profits. This is inevitable. But when you read these articles from outlets like Forbes – like the one written in August with the title of “A bitcoin is worth $4000 – why you should probably not own one” take into consideration the motives of the authors, editors and publishers. What is it they are defending and why. Oh, and to return to the pizza story – when Lazlo was asked a couple of years ago what happened to those bitcoins he didn’t express a lot of remorse and said more or less – those bitcoins went right back into the system, just like they should have to make the system work. And that’s the last difference. Because in this case there is this extremely dedicated, passionate and talented set of people who will make this work no matter what. It’s the blockchain community that is different than tulip traders – it isn’t just about money.

INS

So, no, this is definitely not a blockchain token designed to review immigration status in the United States … this is about grocery. This is about the ability for consumers to purchase their groceries directly from the manufactures of groceries. The premise is pretty simple – the 7 trillion dollar worldwide grocery industry is dominated by retailers. The INS Ecosystem aims to eliminate those retailers (INS website). And the fundamental problem to solve is one of merger and acquisition, where fewer and fewer retailers exist as conglomerates step in and expand. The whitepaper uses the U.K. which is apparently no stranger to monopolistic tendencies , since according to the research done by INS, there are 7,000 grocery manufacturers serving 25,000,000 households – but how many retailers control the majority of the market share? 4. 4 retailers control over 75% of the grocery market. This is actually worse than the US, which I thought was pretty bad. When Alberton’s merged with Safeway back in 2015 they were fighting for survival against Walmart and Kroger. In the US, the top four grocers take on almost 40% of the grocery retail market – which is still an enormous percentage and speaks to the trend that is outlined in the INS whitepaper.

As you might guess if you listen to this podcast, the idea is to use the blockchain to decentralize the market and foster direct interaction between manufacturers and consumers. The fundamental argument that INS makes is that $50 billion is spent by retailers each year in marketing to push the products that provide the maximum profit for the retailer, and not necessarily what the consumer wants or needs. The current model is that the manufacturer doesn’t do any marketing, they just make the product, and send it to the retailer. INS is building a system that provides the ability for manufacturers to reward the customers directly using the INS token. They whitepaper describes a reward system similar to air miles – but they say that since it will be powered by smart contracts, the system should be easier to administer and maintain.

One of the important points they make in the whitepaper is that this will not help just the consumers with lower prices – it will help the manufacturers. The main reason is that retailers, as they have consolidated and reached monopolistic dimensions, have become bullies. This is well known. As reported by Bloomberg, Walmart has a program called “On-Time, In Full”. This program fines suppliers for shipping products early – as well as late. As well as not packed according to protocol – fined. And this has to happen 95% of the time to avoid a fine. As anyone knows who works in supply chain, there are so many factors that can cause a 5% variance – that it’s pretty much guaranteeing a fine. The whitepaper includes a lot of examples from European markets, where the problem is as bad or worse. In Portugal, 90% of the grocery market is controlled by 3 retailers. Those are the just the first three on the list. There are others from Harvard, there is a solid Rails developer – which by the way is a good thing, since Rails is pretty much the standard for enterprise front-end applications these days – and I think something that is often overlooked is that while blockchain needs to power the back-end of the system, the front-end will always be important. You have to have an application that people can use.

The Company and the Team –

In this case, the company is a corporation registered in the British Virgin Islands, which is a common offshore jurisdiction for U.K. based corporations, since there is an established relationship between the UK and the BVI.

The team is primarily Russian, with solid credentials. The founder received his MBA from the Harvard Business School, teaches classes in retail in Stockholm and worked for Goldman Sachs. The co-founder has a PhD in in Finance. The lead programmer has four years in developing blockchain applications – which is a very solid credential in this space, and currently works for ICOBox as CTO. According to his LinkedIn Profile, he developed Equihash, which is used in the ZCash coin, when he was at the university of Luxembourg, where he received a PhD in Computer Science. There are ten people on this team and every one of them has an impressive history of experience and talent, There are no less than four graduates of Harvard Business School.

They also have an all-star cast of Advisors. There’s people from Bancor – by the way, Bancor is famous for raising $150 Million in 3 hours. There’s the co-founder of Wings – another successful ICO. We also see people advising from the Harvard Business School – so if you believe in that institution, you couldn’t ask for a more stellar team.

The Whitepaper

I feel like the first part of the whitepaper does a good job of stating the essential problems that the retail grocery industry faces, such as consolidation as we discussed earlier, as well the supply chain inefficiencies, where food is shipped halfway around the world which adds enormous costs and inefficiencies, not to mention an increase in carbon footprint and wastefulness – they cite a number of about 130 million pounds of food thrown away each year. They go on in the whitepaper to explain why the team has the experience to tackle the problem and then they describe the size of the market – which of course is enormous – I mean, we all have to eat, right? They also note that the ability for consumers to purchase their food online is about to explode, with China dwarfing all other countries combined with a projected spend of 178 B by 2020.

On page 18 they finally arrive at the point at which they begin to explain how the decentralized blockchain that is INS will facilitate better direct engagement between manufacturers and consumers. There are four major actors in this:

This last one, to me, is the lynch pin – because if you think about it, that’s the role that the retailer actually plays in the current model. Or, if you are thinking of something like Amazon Fresh – it’s all about fulfillment. So remove Amazon Fresh and you remove the ability to get the food from the manufacturer to the consumer – so, fulfillment becomes critical. And this might be the one weakness that we can elaborate on when we discuss the gotchas.

The whitepaper also goes on to illustrate and describe the web applications that will be necessary in order for consumers to use the system, as well as a fulfillment application.

The Road Map

The concept was started in the first quarter of 2017, and the company was formed in May. In the last quarter of 2017, which is now, the token sale is happening – and in fact it has started. In the first quarter they plan to develop the INS platform. The second quarter of 2018 they plan to develop the consumer and fulfillment applications.

Then In the fall of 2018 they will be undertaking the development of the supplier software development kit. And they plan to launch the entire ecosystem about 1 year from now.

The Network / Technology

The authors of this whitepaper acknowledge the limitations of the present state of the Ethereum platform as a high-load network. Because they ultimately believe that there will be as many as billions of people using the network, they believe, correctly in my opinion, that the dozen or so transactions per second on the Ethereum platform will not work. Thus, they say they plan to develop a more privatized blockchain, where nodes are selected from a trusted set of supporters. This is a type of consortium, permissioned blockchain. In this type of blockchain, all members of the public can use the blockchain for transactions, but only trusted nodes can validate blocks. The authors mention the HoneyBadgerBFT project, which is largely an academic project at the moment, where researchers have been able to support tens of thousands of transactions per second on a permissioned blockchain using a form of Byzantine Fault Tolerance. According to an academic paper jointly published by researchers from three universities, these scientists set up a total of 344 instances of nodes running on Amazon’s EC2 platform – which is a virtualized server platform for cloud-based instances of servers – they did this across 5 continents and ran these nodes in ascending groups. So the first group was 31, then 40, then 48, 56, 64 and then 104 servers at a time. Then they threw varying transaction loads on these nodes so that nodes proposed anywhere between 256 transactions upwards of more than 131,000 transactions. What they found was that in networks with about 40 nodes, they were able to achieve throughput exceeding 20,000 transactions per second. For a network consisting of 104 nodes they were able to achieve 1,500 transactions per second. Compare this with the 12 that are possible with Ethereum, or the 7 of 8 that are possible with Bitcoin.

You might ask how this is achieved – mainly through an asynchronous protocol, as opposed to the prevailing partially-synchronous protocol named the “Practical Byzantine Fault Protocol” of consensus. In an asynchronous protocol, a great deal of the work is done through batch processes, and not in any type of attempt at synchronicity. The fact that the authors recognize this academic work is a plus in my mind – although it would have been great if they had actually done these types of experiments themselves and then reported it in the whitepaper.

What’s not clear in this whitepaper, and in fact in very few whitepapers is that precisely how the issue of interoperability will be handled between the ERC-20 token named INS running on the public Ethereum blockchain and the INS token that is running on the somewhat privatized, consortium based, permissioned blockchain. Interoperability is a big issue, which is, incidentally, the basis for the project and token that we will be discussing in the second part of this podcast.

The Token and the Sale

There was a presale on November 27th that lasted until December 4th, but I can’t find information as to how much was collected. According to the website, the token sale started 8 hours ago and they have already raised over 50% of their hard cap, which means they have raised about $14M so far.

The soft cap is 20,000 ETHers, the hard cap is 60,000 ETHers – at the present exchange rate that’s about 28M in USD. For each Eth contributed you get 300 INS tokens, which comes in around $1.60 per INS, but there all kinds of ways to get bonuses, all described on the website. You can pay a lot of ways – BTC, ETH, LiteCoin, Dash and even Bank Transfer. US Citizens are closed to this ICO, and they are using KYC, so it might be tricky to buy them if you are a US citizen. The sale ends when the hard cap is reached or in two weeks, whichever comes first.

I’m a little confused about the numbers, to be honest, because when you go to Etherscan you don’t see evidence of the blockchain accepting orders – however, over at the Telegram channel, which has about 10,000 users and is in a bit of frenzy right now, people are pointing out that the Ethereum blockchain is backed up severely right now and they are right – there are about 15,000 pending transactions – and about 12 percent of them are because of a game that was launched about a week ago named CryptoKitties. For .015 Ethereum (that’s about $7) you can breed a virtual kitten – but the crazy thing is you can then turn around and sell them, and some of these kitties are going for $50,000 and up. So this game is consuming anywhere between 10 and 15 % of the Ethereum blockchain. So that’s one reason. One INS person on Telegram said that the orders are in a queue that will be applied later. So it’s not really possible right now to verify that over 50% of the hard cap is raised, but if it is, there’s a good chance it won’t last the two weeks.

If you think about this in terms of the token, the value and the road map together – since the token has no chance of being used in the near future, and since the tokens will end up on exchanges long before the network is running to use them, I’m not sure I see a reason for this token to rise in the near future in value.

SEC Compliance and the US Question

Again, this is an ICO that is denied to US participants, but the team has announced that there will be exchanges picking up the coin within weeks of the sale end. I believe them – although at $1.60 and with a 1-year road map launch, I think it might be a fair bet that this coin will not rise meteorically in the near future. I would not be surprised if this value went down before it went up.

With respect to SEC compliance – if we decide to put weight into the argument made by the attorneys who filed the Tezos class action lawsuit – and if we also add weight provided by the article recently written by an attorney with over 20 years of securities litigation who basically said that if you are raising money to build something that is not already built – your token sale is a security – well, then it wouldn’t look great for this coin from that standpoint, because they have no system. There is nothing in beta, and their Github repository has just a smart contract in solidity with 400 lines of code. So if you believe that the Howey Test prong is met with “relying on the efforts of others” , then this project might be considered a security by the SEC. I will continue to research this area and will report any actions by the SEC that would lead us one way or another. With bitcoin going to $10,000 there has been a renewed interest in regulation. I’m sure the SEC is feeling some pressure to act. So we should hopefully get some guidance here soon.

Business Viability and Possible Gotchas

My feeling is that there is so much obvious consolidation and abuse by large retailers, and so much room for efficiency if you parse out the fulfillment to smaller actors – and by the way, even though the whitepaper didn’t mention it, the FAQ on the website did – that couriers will be attracted in a way that Uber drivers were – then I could see the concept of removing the retailer from the equation could result in great savings and improvements for the consumer.

The slight issue here is that there may not be thousands of small fulfillment centers out there waiting for new work. The courier part of it I can see – after all, now Uber drivers are delivering groceries – and they not necessarily loyal to Uber – but fulfillment centers require a lot of overhead. Attracting them, or even finding them, may be a challenge.

Final Takeaway

My final takeaway is that if you can believe the numbers on the website, this is clearly a successful ICO. They have a solid team, and a good idea that can provide real benefit to the world. And it’s possible to believe that this team could pull this off. While strictly speaking a token is not absolutely necessary for the ecosystem to function, if it facilitates the ability for them to carry on with the idea, and if they do build a distributed network to connect consumers directly with manufacturers, then yes, this will be a successful project that has done well in the world.

B3 Coin

Introduction

Let’s first continue the conversation about, proof of stake, masternodes as a potential form of investment, as well as the fact that certain elements of crypto-currency, particularly the proof of stake coins that we are seeing might be viewed as a sort of series of grand economic experiments. And that these economic experiments are not being conducted in laboratories, like most experiments would, but in the real world with the investments of tens of thousands of people who are experience a wide range of results. All I can say is that if I were a university economics or psychology professor with an interesting in the mass psychology of investing in markets – that I would instruct my grad student researchers to spend a few months in the Discord channels of any number of these proof of stake coins that are being released. This week’s coin is particularly fascinating in this regard, since the roller-coaster of its story continues to this very minute.

Masternodes and Staking

But before we dive into this project, let’s spend a few minutes about masternodes and the so-called Staking coins. For the last couple of years, there has been an entire class of coins that have come into existence, very often slightly modified versions of each other, which incentivize the participants to “hold” or otherwise lock away the coin. This incentive usually comes in the form of a healthy percentage that is delivered in a similar way that your bank adds interest to your savings account. And let’s take a step back to the good old days and ask that simple question – Why do banks do that? I’ll keep it very simple, even though it’s a bit more complicated – if they incentivize you to keep your money in their bank, by adding a percentage of your stake as it were – as a reward to keep your money in the bank – they can loan your money to other people at a higher rate (or invest it elsewhere), and hopefully make more money than they pay you to keep it there. Now if the price of money goes up, the interest rate rises, because the incentive needs to be increased to make it less attractive for you to move your money away. And if you have been paying attention to the interest rates have been paying to keep your money in their bank you might conclude that money isn’t very expensive right now, and thus they don’t need to reward you quite as much, since interest rates are very low. And you would be right about that. Now, interest rates, money supply, and our entire economy is much more complicated that than simplification, and because we literally live and die by concepts such as interest rates and money supply, you don’t see the Federal Reserve – which is the authority that actually governs our money supply, perform drastic measures unless they are called for through some major emergency, like an economic crisis, or a depression.

But the issuers of a crypto-currency are free to experiment. For instance, they can create a currency and set whatever interest rate they like, and can also create any kind of rules that they wish in terms of the supply of that currency. And this is precisely what they do, and what makes this week’s crypto-currency token so interesting.

B3 Coin – a mad professor’s economics experiment?

The first thing I should mention about this coin is that the team that developed it is reportedly the same team that brought us two other quite successful projects – named BitCore and BitSend (B3 website) If you had invested in BitCore when it was first released you would have seen a return of 1000% of your investment. If you had done the same for BitSend, you would have realized a return of 9000 % within about six months.

But this time around, the developers had a completely new and some might say outrageous idea. Using the concept of proof of stake, and also the masternode idea in a rather unique way, this coin advertised a rate of return of 27% per DAY. And why do you suppose they came up with this almost ridiculous figure? Because 27% a day is about 10,000% per year. And so they wanted to be the first proof of stake coin to offer 10,000% annual return.

Now given this, can you see what I mean when I say that this is a bit like the experiment of a completely insane economics professor? As a follow-up I would very much like to dial up an economics professor, tell them this story and ask them what they think. With any luck, we may have a very interesting follow-up episode.

But lets’ talk about what this means and how it actually works. The idea is that you would purchase the coins – and these coins were available only on a few exchanges – and you would then lock them in a wallet. That is, you would “stake” them for a period of time. Similar to last week – there was and is a specific schedule posted, but different than last week, the schedule provided a return based on the number of blockchains that were in existence. For the first 10,000 blocks of the chain, the annual rate of 8%, then from 10-25K blocks, it doubled. And then it doubled twice between 30K and 50K and then it soared to 1000 % , and then for the 20,000 blocks between 60 and 80K, it provided 10,000 % interest . And because as of this time of this podcast, the block is not yet at 80,000, it is still providing 10,000% interest – although that seems set to last for just a week or two more, since that 80,000 block is coming fairly soon. What this actually meant is that if you had, say, 1000 of these tokens on day 1 of the month, the next day you would have 1,270, and your stake of tokens would compound. Using a simple compounding daily interest calculator we see that we would have over 1.5 million tokens by the end of the month if we had not added any during that month.

Given this schedule, you might imagine that this began to gain interest when the reward reached 15% of 25% but REALLY started to take off when the reward reached 1000% and then exploded when it reached 10,000%. And of course you would be absolutely right – that is precisely what happened. And during that period when participants were receiving these interest rates, that original 1000 token investment we talked about before increased to over 1.5 million tokens in 30 days. If all of this sounds absurd – it is in a way, but not completely. The reason is that this token traded on an exchange which would allow you convert it to bitcoin – and it therefore had value – that is to say a token was worth some percentage of bitcoin. When this project was paying about an 8% annual rate, the price of a B3Coin was as high as $.80 in bitcoin. But what you do supposed happened to that value during that time of 10,000 interest? Of course, it plummeted – like falling off a cliff. Because economics 101 tells us that there is no free lunch, right? If the supply of the coin increased at a rate of 27% per day, then the price of one of those coins would decrease about as fast, right? Well – not exactly – and that’s where this experiment, if you will, gets very interesting.

By the way, one of the things that I highly recommend anyone who wants to understand markets in real-time, with real emotion behind it, is to open up a futures account and trade the e-mini futures. Don’t fall under the illusion that you will become wealthy doing this – treat it as an educational investment, in a way, because it is fascinating to see how humans – or perhaps humans programming computers nowadays – make a market move. And one the interesting things you discover is that there are many types of market participants who have many types of goals, and behavior. This is also true for the B3Coin community. What you had was a combination of people who participated and continue to participate as traders – in an effort to take short-term profit – and other people who participate for a longer term. And it would have been one thing if all of the participants in this market had participated in the way that the designers expected – which was to stake the coins in order to receive the rewards – but not all of them did. What happened was that a number of participants – probably more than was good for the network – began to sell their coins during that time when the rate of return exceeded the price collapse. And as they sold more and more, the price collapsed faster and faster. But as the price collapsed, the 10,000% returned continued. And what occurred was an inflation unlike anything we here in the human world could imagine.

B3 Fundamental Nodes

Then some things happened that seem to happen all too frequently in the crypto-currency world, and which again confirm that notion that no matter how well you program a market, intervention always seems necessary at some point. In this case, it was the danger of the value of the token going to zero. Fortunately, the programmers had foreseen all of this – although perhaps not as fast as they thought – and had created a mechanism by which they could intervene. Specifically, I’m talking about the concept of a Fundamental Node. This is a type of MasterNode which doesn’t lock away coins – it destroys them. You literally would burn 25,000,000 coins for the privilege of receiving 60% of whatever block was awarded to your Fundamental Node. The wallet that claimed the block would get the other 40% of the reward. And depending on the number of nodes, your Fundamental Node might win a block more than once per day. And because of some issues with the code that was released, the main exchange, CryptoTopia, froze all trading for B3Coin – which prevented some people who had amassed tens of millions of tokens from creating a Fundamental Node in time – leaving a relatively few nodes that have made, in the last week or so, hundreds of millions of tokens.

Since the coin is not valued at zero – this actually equates to some decent value – one Fundamental Node reportedly received as reward today of 500,000,000 coins, which, even at the rock-bottom low price of .00041 cents, is still over $200,000. What the developers are hoping and probably everyone in the project is that anyone with 25,000,000 coins or in fact anyone with any of them will see this opportunity and will either create a Fundamental Node, or join a Node Pool and thus burn tens of millions of tokens – which will, you guess it – lead to a rise in price of the coin.

At the moment, however, the main controversy of this project is this issue of just a few nodes making what seems to be an enormous amount of tokens through what amounts to being in the right place at the right time – and this controversy is going on right now if you join the Discord Channel and scroll up. One thing that was pointed out, however, by many in the Discord channel, is that just about everyone who is complaining because they have tens of millions of tokens locked in the exchanges and are unable to create a Fundamental Node with those tokens, has already realized a return of anywhere between 1000 and 10,000% or more on the their original investment. And when confronted with this, even the most ardent complainers more or less agreed with that sentiment. That is, in the grand scheme of things, they didn’t have all that much to complain about – except the inherent unfairness happening at the moment. I tend to agree with the majority here, when I think about millions of people worldwide who are lucky to realize a return of 10%, much less 10,000%.

Another thing you will find, if you scroll up at Discord or read the BitCoinTalk forum, is that the original plan was to not release the concept of the Fundamental Node until block 80,000 – and they did it early. And finally, just like so many other noble projects which aim for the most democratic ideals, this project fell prey to a rogue actor – which was the largest wallet with the largest number of tokens refused to upgrade to the latest code. This caused a major problem for security – since in a proof of stake algorithm the real danger is in any one node becoming too powerful and rich and then acting against the interests of the blockchain as a whole and in the interests of themselves. In this case, it appears that the problem may be solved through a large burn of tokens and possibly this rogue actor standing up a number of Fundamantal Nodes in return. I’m completely speculating here is the team doesn’t want to reveal the solution – but I can’t see another way out of that issue, so I’m going to make that educated guess.

UPDATE: 12/15

The latest word from B3 seems to be that they will be converting to a new token named, “KB3” which is 1,000 times fewer than the original B3. Details to follow.

But what does all of this mean for you, beyond what might be an interesting story? Well, I would venture that this deserves a look because the confluence of the code issue, of the so-called #1 Wallet controversy, and the exchange freeze, is that when the exchange opens up again it’s quite possible that the price will fall to an all-time low of 1 Satoshi, which is as close to zero as is possible – and even with the current price of bitcoin at a jaw-dropping $9,700, you could purchase enough B3Coin at that price for a Fundamental Node for less than $2,500. The odds, of course, of you being able to buy this many B3Coin at that price is probably pretty slim, but nevertheless, if you believe in the developer’s vision – that hundreds or maybe thousands of nodes will be created, resulting in billions of coins being destroyed, which will then cause the price of B3Coin to rise again – then this strategy just might turn out to be a very lucrative investment indeed. The risk, of course, is very high – this is literally a coin toss, no pun intended, as to whether it will pay off in a huge way, or will end in zero.

Speaking of the latter, there are some precedents for this, such as embercoin. There is no question that this entire concept is a work in progress. As for me, I’m intrigued by the concept of masternodes. Last week I made a slight mistake – I meant to say please visit masternodes.pro. That’s plural – I still think this is a good site to visit. Click on any of the listings for more detail. Take, for instance, INNOVA, which at the time of this podcast, is showing an ROI of 533%. What this essentially means is that if you start with zero, you would need to purchase 1,000 INNOVA coins and set up a machine to work as a so-called masternode. In most cases, this can be a Virtual Private Server, which means you don’t even have to buy any hardware. According to this list – which by the way, changes often, with ROI increasing and decreasing daily – you would spend about $2,400 and for that $2,400 you should earn about $35.00 per day, minus VPS costs. What’s interesting to me about this is that this is probably about the same return as you might get if you invested in $2,400 worth of hardware and mined some s7 antminers for bitcoin joining a pool, or maybe some GPU’s mining ethereum – but with Proof of Stake you can use a cheap VPS at about $10/month, so all things being equal, Proof of Stake might be more profitable – and certainly easer to maintain. The big problem with Proof of Stake, however, is the unknown ROI. Yes, it’s true that Masternodes,pro has some good information TODAY – but very few of these coins, with the exception of expensive coins like Dash and PiVX, have the kind of stability and long-term potential as BitCoin and Ethereum. I should also remind everyone here that Ethereum is moving to Proof of Stake, which will be interesting in terms of mining – but it may also mean that it will be considerably more difficult to mine ethereum without a significant investement – unless, of course, we see Proof of Stake Mining Pools, like we see with B3Coin. And I imagine we will see that.

Conclusion

To close with this week, I would just say that if you are interested in the idea of running a machine that will provide a return on investment as opposed to simply buying and holding a coin, you should investigate some of these proof of stake coins. And if you are particularly risk-friendly and believe that you should be rewarded handsomely for that risk – well then have a look at S3 Coin in the next few days, since the exchanges should start trading again and the price may reach a very attractive level. One last thing – in case you are quite new to this – the steps for something like that would be to 1) if you live in the US, open an account with an exchange that allows you to purchase BitCoin (I use CEX.IO but friends of mine use Coinbase) and then open an account at Cryptopia, and transfer bitcoins to your Cryptopia wallet. From there you can trade BTC for B3.

ROI – Return on Investment

One of the things I’d like to explain this week before we dive into any specific coins or offerings is something that might not be immediately obvious to everyone – simply that it’s possible to participate in the world of crypto currency in a variety of ways. What we have been focusing on in this podcast thus far is the this phenomenon of what you might call “splashy” Initial Coin Offerings. To recap, this usually involves a very modern and well designed website, a whitepaper which explains the what why and how of the idea, and how that idea can be realized in a better way for everyone if some sort of digital token is involved. And along with the idea and the whitepaper and the impressive website, there is inevitably an impressive team of people, whose stellar achievements are easily found through LinkedIn and other Social channels, as well as repositories like GitHub, all designed to install confidence in the project. You’ll also see pre-emptive well-thought out posts on all kinds of channels from medium, to personal blogs, or Steam, of BitCoinTalk and Reddit – and these espouse certain elements of the whitepaper, Very often this is a way to sort of test the waters for the concept itself. This is all in preparation for and inevitably leads to a carefully orchestrated token “sale” – and that word “sale” is an especially accurate description of the event, because in all of the ICO’s we have thus far covered, this is how it has gone – in exchange for currency, generally in the form of bitcoin and ethereum, the participants in the sale receive tokens – and more often than not, there are ERC 20 Ethereum-based tokens. And these tokens – at least in every single ICO that we have covered in this podcast, and in 99% of the token sales you will see nowadays, are what we call 100% “pre-mined tokens” Meaning, they are simply issued, in total, with some lines of code on the Ethereum platform, and they exist as this massive 50-million-plus store of available coins, ready to be sold in the Initial Coin Offering Event – or Token Issuance Event – or whatever the latest creative name is in fashion. And the idea – perhaps a little disingenuous as we have seen – is that people who purchase those tokens will not view this as an investment in a security, or in any kind of speculative investment, and presumably these participants will use the tokens in the future when the network is up and running to obtain services, or benefit of some kind, or maybe they will do things on the network. That’s what we have come to know lately as a typical ICO, since 99% of them right now are a variation of that model.

BitCoin Beginnings

But first of all, I want to point out that this is not the way bitcoin started. And it’s not the way that most early coins and tokens started, and most importantly it’s not the only way to release a coin or token to the public. It is entirely possible, and it actually sometimes happens, as we shall see this week, that coins are issued in ways in which are quite different from this sales model. So maybe you are wondering what then, is the chief difference between these typical ICO’s and what happened in the past? The difference that matters here is the mechanism by which new tokens and coins are created – and so, the difference is all about mining.

Pre-Mined Coins

Now, since not everyone understands how mining works, and because it can get a little complicated, I just need to spend a little bit of time explaining the fundamentals of a so-called “mined” coin – or digital token – against one that is “pre-mined.” So as we mentioned, pre-mined tokens are just created out of thin air with some lines of code. With the Ethereum platform, it’s really quite trivial to do this – practically anyone can create unlimited amounts of a given ERC 20 token, with literally a few clicks. Now look – I’m simplifying it – while this is true, this is not what the vast majority of ICO’s are doing – they are creating somewhat sophisticated Smart Contracts, with rules about the issuance baked into the smart contract and thus the coin itself – but even so, it’s not exactly rocket science to create coins for an ICO and pre-mine any number of them.

Mined Coins

Mined coins, however, gain their existence through various methods which as a class, have become to be referred to, very generally, various forms of “proof.” There are several types of proof – “proof of work” is one – “proof of stake” is another – “proof of burn” is yet another. There are more methods – and in fact the crypto-currency world is by no means finished thinking about and working on this concept, and innovation continues to solve problems around this issue. The fundamental concept, though, whether the coins are “minted” as in proof of stake, or “mined” as in proof of work – is that the coins do not exist before the method of creation and they do exist after the method is applied. They are, therefore – created by participants in the network – and not before the participants join the network. That’s the fundamental difference.

In this article we will cover Proof of Work and Proof of Stake – but we will begin with “proof of work” – because that is how it all started with bitcoin and that’s how bitcoins are created to this day – and it’s also how Ethereum coins are created currently as well.

Proof of Work

In the so-called the “proof of work” method, nodes – which as we have said before on this podcast – are computers running the full version of software related to the token – these nodes perform actual mathematical and computational work to “validate” the transactions that appear on the network. The way in which bitcoin and coins that employ Proof of Work accomplish this validation is to perform a specific type of cryptographic function in order to solve a difficult “problem” associated with a set of transactions that occur on the network over a specific period of time. In the case of bitcoin, it’s about 10 minutes. You might ask what a transaction looks like – well not much. While it’s true that it’s possible to inject all kinds of strange things into the bitcoin network, the vast majority of information for a transaction consists of a few fields – some of which are encrypted, such as sender, receiver, and then the date, the amount, and a few other fields. Think of a very narrow spreadsheet.

So … every ten minutes, the list of transactions one the bitcoin network is collected by every node on the network – those transactions are continuously broadcasted to all members of the node – and so everyone mainly has the same set of transactions. And the software – the so-called bitcoin client – that all the nodes are running makes an effort to solve a mathematical puzzle associated with that set of transactions. So this is a grand competition – in the case of bitcoin, about 13,000 nodes all competing all at once in one gargantuan cryptographic event for a single winner. The very first node that solves the problem and announces it sort of like a screaming Bingo Winner — and claims the prize. And perhaps you are wondering – what prize? At the moment, it’s 12.5 bitcoins – which is a little over $90,000 at the moment. Every ten minutes. That 10-minute set of transactions, by the way – is called a “block”. And that miner, that solved that block – actually won the right to give birth to the next block of bitcoin transactions – and guess what the first transaction is in the new block that the miner just won the right to create is – well of course, it’s the 12.5 newly minted bitcoins given to the address of the miner. And that new block with that new transaction is then appended to the historical chain of blocks — very much like the tower of blocks you played with as a kid, except this is one massive tower of blocks, because they stretch all the way back to January 2009. Every single validated transaction going back in time to the beginning of bitcoin itself.

Proof of Stake

So that’s proof of work. Proof of Stake is a bit different. Some things are the same – there are lists of transactions, known as blocks. These blocks are recognized and placed on the blockchain, and the first transaction in the new block belongs to the miner – except in many PoS systems they are called something else – “forgers” is a term that is sometimes used. But there are other differences – first of all, there is no block reward per se, but in many POS systems there is a reward for staking over time – or holding, the tokens. By the way – I have to mention this – it’s too amusing not to – If you start to research this space you might see the term HODLING –rewards for HODLING. Just so you know – this is essentially a major meme nowadays, which was started by some guy who was drunk on Bitcointalk, raging about the price of bitcoin at the time, and drunkenly types HODLING – and that was all it took. Instant new word added to the English language with all the force of thousands of people cracking up. I think they finally shut the thread down two or three years later. But anyway – so you hold your coins the wallet in Proof of Stake and you are rewarded for it. And you should think of it as a sort of lottery – but with some weight attached to it. In most PoS systems the forger is provided the block based on a weighted lottery system, where the amount of coins you hold will raise the changes of you being awarded a block. But only the changes – there’s still plenty of room for smaller stakes to get awarded the block – otherwise it would be an instant capital rush and one node would get all the coins – so it’s still a game of chance, so to speak – but slightly weighted to incentivize people to hold their tokens. The chief reason for this is that it takes almost no computing cycles – and it is thus much greener purely in terms of energy. At the moment, the entire hashed power of bitcoin could power a small country’s electricity needs quite easily, and so, rightly so in my opinion, proof of work systems use energy which could well be used in other areas of distributed computing – like folding proteins and such. Now there is one more thing worth mentioning about Proof of Stake – and that’s that it has recently exploded, because there are a now a whole slew of coins that are available to invest in using what is known as a so-called “MasterNode.” This got it’s start with the DASH coin – one of the first major PoS coins – but it now applied to many others – all of which have the same concept in common – that is, with a solid investment, you can set up a computer to run a masternode that performs valuable services on the network and which is paid a dynamic sort of return on the original stake. You can spend as little as $40 to run a masternode, or as much as $300,000 or more, depending on the coin. If you are curious about this – go to masternode.pro to see a full list.

Return on Investment – ROI Coin – An ICO for the Rest of Us

So the first thing you have to understand about ROI is that there is no whitepaper. There’s a facebook page and a basic, informative website. The team isn’t overly hyped – no Stanford and Harvard grads who spent half their lives working for hedge funds and the other half coding web apps just for fun. So that is there – well, there is at least one dedicated, passionate and talented person who simply posted the following on BitCoin talk about a month ago:

What does this mean? Well, it means that anyone – you, me, your neighbor, or anyone else that has a computer, can download the open source software, run it, join the network and start to mine for ROI coins. Pretty much where Bitcoin was in the fall of 2008. You probably already know this, but in case you don’t, I should explain the mining situation of bitcoin now. While it is technically possible to download the bitcoin software and mine bitcoin with it – that is, compete with the other 13,000 bitcoin nodes – it’s utterly fruitless. You would probably do better to spend your time and money with the PowerBall Lottery. This is because the project time frame for a home computer to solve a bitcoin block at the present time is about 140,000 years.

This is because the so-called Mining Difficulty for bitcoin has risen to the point at which the collective mining computing power that is being used to validate bitcoin blocks is about the same collective consumption of a typical single third-world country like Senegal. So … not the most cost-effective thing to do with your CPU. But the programmers who created ROI coin, understanding the issues with Bitcoin, have built their coin to be both GPU and ASIC resistant. GPU’s being $600+ graphic chips (used to mine ethereum) and ASICS being specialized paralleled processors designed specifically for mining bitcoin. The intention of this is for a $300 computer chip — like a computer running a typical Intel i7 processor, to be able to successfully mine ROI coins.

Now one thing I will briefly mention is Proof of Stake – although this coin supports proof of work – which is simply creating coins from mining, it also supports proof of stake, and in this case, it means that if you have ROI coins you can lock them for a certain period of time in your wallet, and that after that time, you will be rewarded for locking them by specific percentages based on how long you “staked” or locked, those coins. The full proof of stake schedule , as it were, is listed both on the site and also on the BitCoin Talk announcement, but it essentially ranges from about 2% for a one-week stake, on to about 50% for a 3-month stake, and then all the way to over 600% if you lock your coins for a year. Proof of Stake using methods like this are very popular at the moment and there is an entire crypto sub-culture who are deeply into Staking coins – and we will cover that topic in depth next week – for this week, just know that ROI coin supports BOTH proof of work and proof of stake.

Exchanges

ROI coins are currently traded on exchanges – they are going for about 1 penny at the time of this podcast. According to conversations on the Slack channel for ROI coin, a relatively modern i7 Intel processor can generate between 100 and 600 ROIs per day, which at the present value translates to about $65 per month. If you subtract electricity costs, a single computer might generate enough to buy your morning coffee (if you drink 6 ounces of drip coffee – but this isn’t really about the money at the moment. This is about understanding and participating in a true proof of work based digital token and generating those tokens without actually buying them. Now I would be the last person to say that the ROI token is going to be the next bitcoin – but there is nothing technically – and I stress the technical aspect of it – preventing this from happening. Practically speaking, it’s a long shot –– because in order for value to grow with this coin, more people would need to join the network and start mining, and then begin to transact to establish and grow value. No one can know whether this will happen – but remember, this is exactly how bitcoin got started, so you never know. One of the things you should be aware of is that although it’s very rare for anyone to launch a coin like this nowadays – it is by no means the only one. You simply have to look for them.

The Team and Community Response

Let’s talk about the team on this one, and the community response, because even though this is not a hyped coin, there is definitely some people behind it, and it has gotten favorable reception on BitCoinTalk, from the day it was announced. The original announcement occurred on November 5th , 2017 and a number of people downloaded and started to mine the coins. The people behind the coin stated the day after the announcement that that they were be running 50 mining computers to secure the network and keep it running. As more people signed up and started mining, the developers said they would be backing those off. At this moment there are 54 pages of discussion on BitCoinTalk, which is quite healthy. The slack channel was started on the 16th and the people manning it are happy to answer any questions. Right now there is a bit of a debate surrounding the use of clustered and pool mining vs. solo mining. This debate is mainly occurring on the BitCoinTalk channel. The facebook page seems to have decent support and the team has released an explainer video. If you read these discussions and posts you will see a lively discussion in what has to be described as the very early stages of a project.

Final Takeaway

My takeaway on this one is that you rarely get to see a truly grassroots project like this one appear, and it’s refreshing and kind of exciting to see it growing day by day. One comment I liked on Facebook was “and ICO for the little guy”. And it’s true – you don’t need any money to start with this project, and you have several choices as to how to participate – you can mine for coins, you can purchase and stake (or lock) your coins to receive a larger return over time, and you can participate through a bounty which is now just being developed.

The thing like about most this is the egalitarian aspect of it – anyone with a computer can join, and can get started immediately. I also like the fact that they are not asking for 50 million dollars. In fact, they aren’t really asking anything of anyone except to download their software and join the network to make it better and stronger.

The other thing I like a lot about this project is the attitude from the team – they are not promising great things in the future after they collect your donation – instead they went ahead and did the legwork first, built the system and now that is live, they are announcing and simply inviting people to join the community. This is very, very different than 99% of the ICO’s we see today.

And they are extremely active. In fact, one thing I should mention at the time of this podcast – Sunday, 11/19 they are planning a hard fork of the platform for a number of reasons. So expect plenty of interesting events to take place with lots of activity both on slack and bitcointalk.

If you are interested in joining a fast-moving project at the very early stages of development, that doesn’t cost you anything to participate except your time to learn about it, I would encourage you get started with this excellent project.

Owen Scott: What type of data will reside on the blockchain? I understand that content for caching purposes will reside on the nodes (on their filesystems?) to assist with caching requests, but what type of data will reside on the blockchain?

Owen Scott: I saw the use of the Ethereum network and a smart contract to support the relationship between proxies and service providers and of course the customers, but is there any part of your architecture that would rely on a private blockchain, so that the entire network is comprised of private and public chains?

Alex Godwin: We are currently only planning on having a public chain

Owen Scott: How will nodes distinguish between malicious traffic and legit traffic during an attack? Are malicious attackers identified by IP address and those addresses added to a blockchain and shared among nodes?

Alex Godwin: There are a few ways to do that, we’re currently talking to someone who has been working on a DNS anycast system with data output capability. Using that data we could detect attacks on the DNS side and mitigate it using the nodes. Nodes would be responsible for detecting application layer attacks though (using OWASP etc.)

Owen Scott: Will the node software include firewall code that simply drops the packets from the malicious attackers?

Alex Godwin: Yes.

Owen Scott: What protocol are the nodes communicating over between each other to keep abreast of a fast-moving and shifting attack?

Alex Godwin: For most long term storage (blacklists etc.) we will use the blockchain, but for short term and fast moving attacks that is currently being decided, it will likely need to be quite custom though. Needs to have low overhead (so it doesn’t compromise mitigation), high speed, and resilient to tampering.

Owen Scott: In the pay-as-you go model, do you mean that companies would initially sign up for the protection, and thereby be added to the network , and not have to pay an ongoing fee to be part of the network? If not, how do the nodes get compensated for the inevitable caching updates that would need to take place, almost in real time, to keep the site(s) current? Or does the node software just use available bandwidth and as such there is not a lot of cost associated with that?

Alex Godwin: Companies will pay a flat per GB cost (and possibly a per pool signup fee for large amounts of data/traffic) As for the nodes compensation on storage updates, that will essentially be built into their compensation for bandwidth because it will be quite minimal in comparison to other traffic they get.

Owen Scott: Referring to the above question – would there be a sliding scale what companies pay determined by the amount of content that is being cached? In a telegram chat, one response was that providers could charge what the market would bear. Would Gladius feature smart contract templates, or transparent front-ends that would allow providers to set fees according to bandwidth and disk space for caching?

Alex Godwin: We’re currently developing a front end that will allow a pool manager to control all of those parameters through their browser (or desktop app if they prefer). Our goal with all of this is to make it as customizable as possible, so being able to choose to set a price for storage or not.

Owen Scott: Finally, we see 2,000+ members on your telegram channel, an enthusiastic community on BitCoinTalk, and most goodwill in the community. Excellent job! Did Gladius team up with an ICO services company to prepare for the launch?

Alex Godwin: Thank you! We’ve worked with the marketing team at InboundJunction through this whole process and they’ve been a massive help in that department.

Gladius ICO Analysis

In this week’s episode we are going to focus again on a highly technical ICO which has some special fascination for me because it seeks to address a number of issues that IT people like myself face when managing things like servers, networks, but which very much affects all users of the Internet. And as is the custom with this podcast, we are going to go down a slightly technical path as some background before we begin to discuss the ICO itself, which I hope you will find interesting.

DDOS, MIrai and “One Very Angry Gamer”

Last October – to be precise October 21, 2016, a very large part of the internet appeared to go completely dark for a few hours in the morning, and then a few hours again later in the day. What I mean by that is that almost 70 sites were unavailable – and I’m not talking about mymomandpopwebsite.com – I’m talking about – and here’s a very short list – Amazon, CNN, The New York Times , Boston Globe, HBO, Paypal, Netflix, Zillow, Yelp, Twitter, Visa – even the entire Swedish Government if you can imagine. You may ask, how did this happen and why? A couple of interesting things – first, all of these massive companies used one DNS provider named Dyn – remember, DNS is the Domain Name System, which is a service that allows you to type amazon.com into your web browser which then translates your request to Amazon into a routable IP address, which then allows your request to make it way, accurately and without fail, to the servers that Amazon runs to provide you with a way to buy you latest required thing you need that you hope will make your life a little better. And this company, named Dyn as a company that we used to use about ten years ago as a free service to change DNS records for our home routers when the IP address changed, but which grew into a very large company to service very large customers. You can go see the list of companies affected by visiting ico41.com and checking out the corresponding blog post for this podast if you are curious. But here’s the crazy thing – amazingly, it turned out to be one apparently very angry gamer, who was mad at Playstation that resulted in the largest Distributed Denial of Service attack every perpetuated – and this person remains anonymous. So you might wonder how this is possible. All this person did – was they first installed the Tor web browser, which is a tool that allows your activity to be anonymous through a clever series of obfuscating nodes that make it very difficult to trace backward from when you came – as it were – and then this person used the Tor browser to enter what is know as the so-called Dark Net and then they paid about $7500 to rent the notorious “Mirai” botnet for a few hours. Maybe you are wondering what the Mirai botnet is. Another fascinating story, actually, in that the Mirai botnet consists of at least tens of thousands – maybe hundreds of thousands, now way of knowing actually devices used by normal people in their efforts to use the internet. Things like home routers, smart DVD players, and especially Closed Circuit Television Cameras – all of which are installed by people who don’t take the time to change the default password. The source code for the Mirai malware was released on GitHub, which then allowed both malicious and benign people to download and use the code to not only launch attacks and start businesses on the dark web to rent out their Mirai infected botnets, but also allowed benign actors to launch competing software to wrestle control of these compromised devices and protect them, or attempt to protect them. If you happen to be interested in this sort of squalid side of the Internet, you can visit ico41.com and check out the blog post for this podcast episode and click on the some of the links there to places like GitHub, where people have posted chats from forums where hackers brag about their exploits – like the fact that their first scans using Mirai uncovered something like 380,000 new bots. In any case, this company Dyn managed to mitigate some of the attack by using what are known as Content Distributed Network services – where various parts of their networks were protected by distributed servers serving their content from a variety of other locations – not just one place. But even with all of that protection, the companies still lost millions of dollars and millions of people had no access to those services for hours – and ultimately the fact remains that most likely, this attack stopped mainly because the person renting out the bot army probably couldn’t afford to pay for more than a few hours of the botnet army. So, it’s not like those 100,000 devices were all fixed and it’s probably accurate to say that there’s little or nothing to stop this from happening again.

So what does all of this have to do with the ICO we are reviewing this week? Well, if you think about what happened just in that one attack – it’s very doubtful that this angry gamer intended to take down almost 70 of the largest companies – it’s just that those companies used this one company named Dyn for their DNS. So any project that seeks to provide distribution of resources would work toward mitigating this problem. And also, in case you didn’t know – those so-called Content Delivery Network systems which are in place to protect sites and which are also responsible for the ability for millions of people to use Amazon every day and still have great performance — are very expensive services. And there’s not a lot of them. So this all leads us to this weeks ICO, which is …

Gladius

So there’s the concept – the Gladius network will be powered primarily by the Ethereum blockchain, which will incentivize people who wish to be rewarded by contributing their bandwidth, computing power, and disk storage to run a node. The nodes provide a variety of services, which are basically what we referred to earlier as Content Delivery. You should understand that content delivery is mainly from a geographic perspective. Meaning, if you are a fair-sized company that maintains servers in NY, LA, Miami and Chicago, you don’t want the people in Oregon visiting your site to be waiting the 125 milliseconds for images and text to be sent to you by the New York site – you want them to be using the Los Angeles site, which might take maybe a third of the time. And more than that, how great would it be if the static content, like images and video were actually loaded from Portland, Oregon, for those Oregonian users? That’s what a Content Delivery Network can do, and that’s what Gladius is intending. Now … traditionally, Content Delivery Networks like Akamai have a very high overhead. I myself used to work in a large data center that served as not only a hosting center for the likes of Ebay and Blizzard Entertainment, but also provided important routing services and large network pipes between major cities. All of the fifteen or so data centers in the company I worked for had Akamai servers in those data centers – and I can tell you that hosting a bank of servers in a data center and consuming a great deal of bandwidth is not a cheap proposition. It’s for that reason that content providers like Akamai and Cloudflare charge a LOT of money. So what if instead of expensive servers in large data centers, the content delivery network was powered by thousands of regular people who make a little bit of money to provide the services that big companies like Akamai and CloudFlare currently provide. The main service is content delivery, which provides a lot more speed for browsing websites, but also included in this service is protection from Denial of Service attacks we discussed earlier.

Company and Team

Like many of the ICO’s we cover in this podcast, the company itself is very new – the linkedin company page shows 7 employees and that it was started in May of this year. And like most other ICO’s it’s all about the team. There are 12 members of the team, split about 50/50 between core member and advisors. The core team members are young – some still in college, but with obvious talents, since the github repositories are full of code that you can download and compile. As you’ll find when we talk about the community response to this ICO, this core team has benefited from their advisory board, which consists of people who have good experience in advising blockchain projects, and who have had success in communicating this one. The advisory board in this case not only includes experienced marketers and business people but also technical advisors with deep experience in programming on the blockchain, which helps to explain the repositories we see on GitHub.

Responsive Team

I found the team to be quite responsive on Telegram and answered my questions immediately and in detail through an email with the CTO that I’ll paraphrase below in various places, and which I will also post on the blog that goes with this podcast at ico41.com.

The Whitepaper

This particular whitepaper speaks to me on a few levels – one, because I have spent a fair amount of time as a network engineer, and worked in data centers where we combated things like denial of service attacks, and because one of the companies I have worked for has used and paid good money for Content Delivery services, I understand the problems they are trying to solve with this whitepaper. I feel that they did a good job in describing those problems to people who may not fully understand the need and the components of a content delivery service, and also did a good job laying out the business case, which we’ll discuss a little later.

There was a little bit of high-flown rhetoric that was a bit amusing, particularly the part about the 8 seconds of attention span – but the point can be made that it’s quite true that no one these days has time to watch a web page being loaded – if that page isn’t up instantly, those visitors are gone. I can attest to this myself, where at one point I had some bad javascript on a website once that was grabbing the wrong versions of some image files – the larger versions (which shouldn’t have been on the site anyway!) – and as soon as we fixed the script to pull the right files traffic of more than three seconds increased by about 1000% overnight. All in all, this paper is good balance between the business aspects of delivering such a server, and technical challenges and architecture.

The Road Map

The Road map consists of several Phases.

Phase 1 will end around March of 2018 and in that period we should see the second version of the smart contract, as well as a second version of the client and node pool software. Right now these items exist on Github, and even in the code comments they admit that there are some missing items that will be developed after the sale – such as the ability to have a little more control over the node software. They also plan to have fully encrypted communications by then.

Phase 2 takes us through August of 2018 where that stage will see the finalization of the network so that it’s commercially viable on a large scale. By large scale, they mean the ability to protect hundreds, or even thousands of websites. As well, we will see the scalability of node pools, which will allow more sites to be protected. We will also see the removal of any centralization – and we understand this, because there’s a little bit of the chicken and egg issue when building a distributed network – wherein you need to have the full functions of the network running before people will join … to build the full network. So these functions necessarily have to take place with some centralization in the early part of development. It’s good to see in a whitepaper this acknowledged and planned for. You don’t see this that often. We will also see at this time the auto-payment and a bid/ask system for the marketplace. We’ll talk a little more about the marketplace in the business viability section of this analysis.

The final phase is December of 2018, where they plan to release an open source network builder for closed systems. This is interesting because it allows private networks to take advantage of the content delivery aspects of the service, and would allow any company to download the software and start using it privately. They also plan multi-pool support for companies that will pay for an added layer of protection.

What’s interesting is that some of these features are tied to funding goals which I won’t enumerate here, but which you can review yourself with the whitepaper. It’s good to see that at the lowest level of funding, which is four million dollars, we see the fundamentals of the service, which is a content delivery network, DDOS defense, and load balancing.

Token Sale

The name of the token is Gladius with a symbol of GLA. What’s interesting about this particular sale is that the sale was restructured – mainly around the timing of it, but the extension also allowed for some bonus improvement. In a series of articles on Medium, it was explained that the token sale pre-sale was extended to November 23rd of this year – that represents a three-week extension. The public sale begins November 24th and ends December 30th of this year. In the presale, there is a cap of 28,333 ETHER, which right now represents about $8 Million dollars. There is a sliding scale of bonus pricing for the token based on number of tokens purchased by the contributor – you can find this on Medium , but I’ll explain that starting with 1 ETHER to 16, there’s a 20% bonus at 600 GLA per ether, and if you contribute more than 335 there is a 40% discount – so, big reward there.

What is interesting about this pre-sale and which I actually like a lot is the vesting period. This, of course, is to discourage pumping and then dumping the tokens. There’s no vesting period for small contributions like 1 ETH or up to 16 but if you contribute 335 or more, it’s a two-month vesting period.

SEC Compliance

For me, like last week, which is also an IT-based ICO, I see this is as an extremely utilitarian token, and very little for the SEC to be upset with. There’s no evidence or promotion of this token as an asset that represents equity, and no promise of a return on investment. The token will power the network and incentivize small actors to join to distribute both the resources and the revenue. So from my perspective, this appears to be a purely utilitarian token, and I would be quite surprised if this ICO ran afoul of the SEC, given the types of ICO’s they have been targeting lately.

Reaction from the Community

The team has done a very good job with the community overall. For instance, there are over 2,000 members of the Telegram channel, and their Bitcointalk announcement post has eleven pages of comments – almost all of which are positive. The few concerns expressed about things like the age of the founders were very well answered – and I like some of the answers from non-team members like “What, you want the developers to be 100 years old? How are 100-year olds going to stay up all night coding!” But in addition to that, the founders themselves responded with the fact that they are surrounding themselves with older, perhaps wiser people – and from a look at the Telegram channel and team members on the website, they have done just that.

They did a good job over at Reddit, which in my opinion is really one of the most unforgiving channels and also the most useless forums we have. It’s become, in my opinion, a depressing spiral of trolling, and then draconian catch-22 rules to prevent trolling, which then filter out thoughtful users who don’t have the right amount of post karma – pretty bad. We’ll continue to use Reddit as a partial voice for the community, but we won’t count it nearly as much as we will compared to BitCoinTalk. Nevertheless, the team responded very well to a multi-bulleted post which brought up various concerns.

The Telegram channel, with it’s 2200+ members is where the real action is for this ICO, and the team managed to weather a minor storm when they made the decision to postpone the Pre-Sale of the ICO for three weeks. The primary reason they made this decision was strategic, and it has to do with the upcoming Segregated Witness version 2 that is coming up for Bitcoin – this is a major fork and is causing both the price of Bitcoin to sail through the roof as hardly anyone anywhere is letting go of their bitcoins until at least after the fork. As a result, these next few weeks are absolutely the worst time to launch an ICO. So the founders did a very wise thing in postponing this and they took some flak, but 90% of the people who responded understood the decision. Those that didn’t levied what I saw as unfair accusations of greed. And the terms of the postponement actually improved the sale, so this went over comparatively well in my opinion.

The team was very responsive, and I was able to get all of my questions answered last minute today by the CTO, because just like every other week, I’m way late on the my analysis. I will post the full Q&A on the ico41 website like I did with the CEO of bitJob. One of the things where the team might have done a better job is to have the people manning the bounty conversation over on bitcoin every bit as available and responsive as the ones in the Telegram channel. The team wisely insisted that bounty questions be reserved for BitCoinTalk – which is where they belong, because that’s a whole different level of conversation – which we’ve covered on this podcast before – but the people who are interested in bounty are generally a demanding lot, and so if there is anywhere you have to answer immediately, it’s there. I think, by the way, that the whole concept of bounty is definitely a double-edged sword. It probably helps in the long run, but you have to deal with a lot of people whose motivations are not entirely the well-being and success of your project. The bounty in this case was 7 bitcoins for all bounty participants – which at today’s prices means about $42,000. I guess we need to realize that for people around the world, this is something definitely worth clamoring for, no matter how small a slice of that you end up getting for your efforts.

All in all, there has been very positive reaction from the community.

Business Viability and Gotchas

One of the things that stands out for me with this ICO in terms of business viability is the service they are providing and the competition that is providing those services. For instance, there are other ICO’s that seek to decentralize large service providers like Amazon and Microsoft Azure for cloud-based file storage. I’m referring to SIA and Storj, but the problem there is that cloud storage of files is practically free – for instance, my Amazon Prime membership comes with FREE unlimited image storage. And something as small as iDrive costs $75/year for a TB of storage. With these kinds of prices, the people running storage nodes are having a hard time making it worth their while. But the services that are provided by the competition in this space are very, very expensive. So in terms of viability, the concept is certainly viable in terms of market.

As far as gotcha – the one thing I can see is that this will take awhile to get to the level at which a distributed network will reach the level at which it can compete against something like Akamai or CloudFlare. There will need to be a very large rate of adoption to reach that level, but as website owners begin to see the benefit of cached content, and particularly if users in Asia can jump onboard the network, the rate of adoption may increase, because the traditional content delivery networks don’t have much of a footprint in Asia.

Final Takeaway

For me, the final takeaway is this – this is a solid idea which is much needed, and which is a good use of the blockchain in terms of unseating a very powerful few – but also more immediately providing value to smaller customers who cannot afford expensive Content Delivery and protection against denial of service. And the team, to me, seems very solid, with an actual set of code that is available now, three weeks before their public sale. Thus, this is definitely one worth looking into, in my opinion.

In this week’s blog we are going to focus on the most technical Initial Coin Offerings we have thus far considered, and for myself, this is a refreshing change. Now, unless this is your first ICO 41 blog, you know that in this blog we try to swing between the business use of blockchain and the underlying technology behind it – and I suppose that just might be a reflection of my tendency to stand between the middle of these worlds for so many years. And when we spend a little too much time on the business side of things, we may tend to get caught up in the excitement of the promise of what blockchain can do – and I’m talking about the fundamental concepts of distributing the workload across many nodes, and removing that giant, centralized power structure to allow for peer-to-peer transactions – plus the immutable ledger that speaks the truth about what happened in the past – all of these great things that we have talked about. Well, in the investigation of this very technical and interesting project this week, we received a bit of a wakeup call – maybe you might say a reality check. What I mean by this is that as we dive into the promise of the likes of bitcoin and ethereum as platforms to provide blockchain technology, we run into some uncomfortable truths – and the people behind the project that we are analyzing this week are outspoken and articulate about some of these limitations. I have been thinking in the back of my mind about this for some months as I have been producing this podcasts, and I think it’s time to roll them out and consider them, one by one. So before we dive into the upcoming token sale we will discuss this week, let’s do that now.

Constraints of the Public Blockchain for Widespread Adoption

First, let’s look at Ethereum. Now, as we know from this podcast, it’s actually Ethereum, with its rich set of functionality that allows the deployment of smart contracts, and sophisticated distributed applications to run on its platform that has made possible the vast majority of the ICO’s that have swept the market over the last year or two. But the reality is that the inclusion of all of this functionality on the ethereum blockchain has caused it to grow to over 330 GB at the time of this podcast. Which means that a node that runs with all of the historical transactions from what is known as the genesis block – the very first block – is required to download and maintain a starting point of 330 GB. And even though it’s possible to do a lot with what is known as the lightweight client, coming in at around 30 GB – this is still a significant barrier to widespread adoption.

Secondly, transaction speed and capacity on public blockchains is abysmal when you compare it to traditional client-server implementations. Let’s just take purely financial data – simple transactions . This is not a lot of data – it’s the identifiers – like recipient, sender, their identications, such as a credit card number, or in the case of blockchain a public key – 64 characters, when it happened and how much was transferred. Well, Visa reported in 2016 that their average transactional load, if you will, was about 1600 transactions a second. Paypal themselves handled about 6 billion transactions in 2016, so on average, it’s about 193 transactions per second. Ethereum is lucky if it can manage 20 transactions per second. Bitcoin is down to about 4 transactions per second. Needless to say, this is a serious impediment to widespread adoption.

And then there are the fees. At the time of this writing, the average transaction fee appears to be between $4.00 and $7.00 per transaction. This makes it impossible to use for things like micro-transactions. In fact, the transaction price has risen about 1800 % over the last two years. Ethereum still has relatively low fees, but in an article written in August on HackerNoon, the cost of a complicated ethereum smart contract was up around the cost of a bitcoin transaction.

What this basically means is that the massive and widespread migration of current technology to the public blockchains such as ethereum and bitcoin is most likely NOT going to happen the way many of the ICO’s and blockchain evangelists promise. So where does that leave us?

Enter the Private Blockchain

Well, it most likely means that a large amount of the deployment of blockchain technology will happen privately. Because many of the issues that are listed above are at least mitigated, if not completely solved, by private blockchains – or side-chains.

Lamden – Concept

First, the concept – Lamden is in the process of constructing a framework that allows for the rapid development of blockchain technologies, and then takes it a step further by offering a distributed platform for routing transactions between different private and public blockchains. The team members of this project are very aware of the limitations that we have discussed earlier, and they also add to those things the fact that deploying and / or migrating your current infrastructure to the blockchain is not an easy proposition. Now it might be relatively trivial to actually get a blockchain up and running, it’s an entirely different proposition to build an ecosystem on top of it. For instance, simple things that we take for granted, like the Domain Name System – or DNS, which as you probably know allows us to type something like lamden.io into our browser, which is then instantly translated to an IP address that allows us to reach that site – well, that type of service is pretty much nonexistent for blockchains that need to speak with each other. And even if they can speak to each other, it’s very difficult to manage what we might call cross-chain payments – that is, payments between nodes operating on two different blockchains.

Also, there’s an important part of modern software development called “DevOps” – short for “Development and Operations” this refers to the relationships between IT and Development. Now, if you don’t have a technical background, you might not even know there was a difference between these two groups, but there absolutely is, and they need to work together in order to get software released and functional. So in the traditional software development world, you have entire platforms devoted to this relationship – one of the best known examples is Docker. This software allows you to manage and launch your application from what is known as a container, which is portable between underlying operation systems.

Not only that, there’s the issue of finding people who know how to build stuff on the blockchain – like fully-functional, robust and powerful applications that can solve complication business problems. According to an article posted last year on bitcoinmagazine, there were about 5,000 available developers who had extensive experience in writing software for the blockchain, and maybe 20,000 that had a small amount of experience with it. Compare this with about 9 million developers working with Java in 2016, with about 6 million C# developers. And like most development environments in the very early stages, there is no supporting development platform to make the deployment of blockchain applications a simple matter. Lamden intends to change that by providing a set of tools to allow rapid deployment of blockchains, simple implementation of smart contracts, and finally the ability for separate blockchains to talk to each other easily.

Lamden – the Company and the Team

The company is run by people in both Switzerland and northern California in the bay area. The company was registered in California in February of 2017, and according to LinkedIn there are nine employees. The profiles on LinkedIn show a talented group of technologists and business people. This company is particularly strong in software development. Most of the team members have active GitHub profiles and you can look at software repositories for some of them that go back years. There’s little question that this team can pull off what it is they plan to delivery, particularly because you can visit the repositories and download software written in Python that is functional. The team has also released a fifteen minute video that demonstrates the use of some of the tools that we will talk about when we discuss the whitepaper. The documentation is well-done. I was able to follow a document and some of their code that allowed me to get four nodes running on two private ethereum networks using a virtual linux machine in less than a half hour.

The Whitepaper – Meet Saffron, Flora and Clove

The first thing the whitepaper does is a good job of articulating the limitations of the public blockchain environment, especially from the point of view of someone who needs to deploy a commercially viable software environment in a reasonable amount of time. All of the problems we discussed previously are well articulated, and the whitepaper then goes to explain the three offerings that Lamben offers to at least mitigate the most egregious of these issues:

First, there is a product or module called Saffron, which allows for the very rapid deployment of operational blockchains. With just a few environmental variables and some simple commands multiple nodes on multiple chains on different networks can be up and running.

Next, there is Flora, which is a package manager. If you have any experience with linux, you are familiar with applications like apt-get or yum which allows you , with a single command set, to install, uninstall and update entire software packages. For Python developers there is “pip.” Flora allows this sort of thing but with smart contracts, and allows the distribution of those packages across multiple participants in the Lamden system. An interesting note here is that while the original plan was to use the Interplanetary File System , or IPFS, for data storage, they settled upon Apache Cassandra, since it was enterprise-tested, and apparently more scalable, since IPFS is still more-or-less in the alpha stage of development. The key to Flora is what Lamden calls “Template Solidity” – spelled tsol – and pronounced teasle. These templates provide the ability to re-use common contracts and then deploy the contracts with simple parameters that are definled when they are compiled. This also allows for a more dynamic definition of data structures.

Finally, there is Clove, which functions as a router that facilitates the ability for blockchains – both private and public, to talk to each other. And by talk to each other we are mainly talking about payment, which is currently quite difficult. This router provides a public ledger that mainly routes between private chains. It won’t suffer from blockchain bloat, and it won’t need fees nor will it need to be run by difficult hashing functions. Instead, this lightweight router is designed to be powered by the private chains that it serves. The lightweight nature of this router has about the same demands, according to the whitepaper, as a typical web server – which is a lot less than would be demanded if it were a more traditional blockchain miner.

The whitepaper then goes to explain at a high level the steps you, as a typical IT manager, or team of developers, would perform in order to actually make this system work. It starts with Saffron to get your blockchains up and running, followed by deploying some some ERC20 tokens or maybe some smart contracts using Flora, and then you use Clove to hook up your private chain with other private chains or the public blockchain for seamless inter-chain transactions.

The Tau

The last thing that the whitepaper does is introduce the token Lamden Tau, which is a digital asset that is designed to be completely native to Lamden and agnostic to all chains. This token will serve as an immediate, utilitarian entry point for developers to begin to transfer assets within the Lamden system, as well as a way to easily transfer payment from one chain to another, through an exchange with the Lamden Tau token.

They key thing about this whitepaper is that it is geared toward developers and IT professionals that have probably attempted to deploy private blockchains and have run up against the difficulty inherent in getting chains to communicate with each other, attempting to make cross-chain transactions, and spent a lot of time developing smart contracts by piecing together code and libraries snatched from the web or written from scratch.

One the significant things that is provided, not in the whitepaper, but in a vision document, is a high-level analysis of other competing platforms. They mention Hyperledger, and point out that the deployment using that platform requires advanced networking knowledge, and takes months to create a working blockchain environment using that platform. They also point out that the interoperability of Hyperledger is confined to .. you guess it – other chains using Hyperledger! Another was Tendermint, which not only required expert networking experience, but also a high degree of knowledge in consensus algorithms – and zero interoperability. In the table in the document, the Lamden platform stood out as the only project that allowed truly rapid deployment – a matter of days, with universal interoperability – thanks to the likes of Clove.

This platform represents the first major creation of a platform written by and for developers who need to deploy blockchain rapidly and efficiently.

Road Map

The road map has about a total of a 1-year timeline after the token sale , where all the software will be deployed in a stable, version 1 release, and the protocol specification will be documented. Taking a step back to the present, about a month after the Lamden Tau tokens are distributed, which will occur in December, they expect to have a rigorous testing of all three tools working together, with Q & A testing, and alpha releases of all three products by the end of that month. One of the significant milestones that is part of their road map is an enterprise Case Study, which is planned in Q1 of 2018. A month after that they hope to have a front-end interface completed to browse and interact with a web application version of the Lamden suite of applications. By the summer of 2018, they intent to have the Lamden Tau token deployed on a high throughput blockchain, followed by a Lamben Tau migration event.

The Lamden Token Sale

The name of the token is Lamden Tau, or just TAU. To participate you must register, which is simply filling out a form and providing an ETHEREUM address that you control – not one form an exchange.

The presale is going on right now and ending November 1. For each ETHER contributed, the contributor will get 3,196.81 Tau, which, and at a $300 USD / ETH price, it comes out to $.09 per TAU. There’s an uncapped individual contribution limit in the pre-sale, and there is a $5M hard cap during this presale. Prior to the presale, the team announced that they had received $150,000 in seed investment. The token sale itself launches in mid-november. During that time, the USD/ETH price will be determined just 24 hours before the launch, but the price of ETH to TAU in this case is 1966.1 TAU to one ETHER, which provides some pretty good incentive to participate in the pre-sale. There’s a $45 USD Hard cap for that sale, and there will be individual contribution caps, which will be determined when they know how many registrants there are. They use a fairly simple but somewhat dynamic formula to determine the individual cap – you can check it out at lamden.io.

The maximum number of tokens that will be generated is 500,000,000, but any unsold tokens after the sale is complete will be burned.

SEC Compliance

There is no hint of a speculative approach to the coin here, no hint anything that would point in the direction of a security, and the use of the token is entirely utilitarian, as is the entire platform itself.

Community Reaction and Interaction

The team has issued a couple of press released, they have a nice explainer video, and also a youtube video that has a title that speaks for itself – Private Ethereum Blockchain in 10 minutes. And this is essentially a demonstration of saffron and flora, where they register some flora users, upload a smart contract to generate an ERC20 token, then use saffron to initialize the token, and then walks through a wizard-style process that takes a few parameters to instantly create the chain, and using flora as a package manager, they are able to deploy a templated contract on the chain with a single command with parameters. Now the beauty of this is that you don’t have to be a developer to do any of this. There are templates provided that allow you to make a few basic decisions about the contract and then deploy it instantly. If you are a developer I think you’ll see the value of this, but if you’re not, I’ll ask you to take my word that this saves a LOT of time, and makes the whole premise of blockchain and smart contract deployment a lot more palatable for companies who are considering using this technology.

On Reddit and BitCoinTalk there’s not a lot of reaction from the community, and this might be because there is no bounty. If you ever get a chance to head over to BitCoinTalk.org and look at some of the ICO announcements, you’ll see that there are about a 100 comments about bounties for every serious question or comment about the project itself. So this project is sidestepping all of that.

The Open Source Attitude

One thing I noticed is that the team has a very open policy – they are clearly committed open-source software developers, and so they welcome community involvement in the code – and as I mentioned they are very active on github. One of my favorite part of putting this podcast together is direct interaction with the people who are running the token sale, and this is no exception.

I had a great chat with Stuart, the CEO, on Discord, where he was quite willing to share his findings, research, and opinions about a wide range of blockchain-related topics. I always learn something from these talented people who launch this sales, and in this case I learned some very useful information about some fascinating alternatives to Proof of Work, which happens to be one of the current constraints of public blockchain. In fact, Stuart created a well-written blog post about Proof of Work, where he showed with some scary statistics, just how much of a massive waste of resources Proof of Work is, and how it could and somehow should eventually be put to better use – like, say, folding proteins, searching methods of hydrogen production, climate analysis, searching for extraterrestrial life – and about 65 other projects that could use the computing power. By the way, if you are interested in contributing this way, and you don’t feel like mining for some coin, check out the list on Wikipedia

Business Viability

In terms of business viability, I think there’s little doubt that there is a strong use case for what it is that Lamden in building – one of the reasons why we are still considering the blockchain in an infancy stage even almost nine years after bitcoin’s genesis block is because of a lack of simple tools to deploy the technology. And further than that, I believe happen to agree with the team in that the widespread adoption of distributed applications that are running on public blockchains are a bit of a fantasy – the explosive growth is going to be more like a distributed system of thousands of private blockchains that all have to easily talk to each other – and which make use of and occasionally transact on the public chain when they need to. The is a much more realistic future – and anything that makes this easier to happen has a high chance of success in my opinion. If you think about the company and what they will be doing – they will be using their token as a way of facilitating these inter-chain transactions, and therefore the token will eventually be used a lot, which will bring value to that token. That’s my humble opinion, anyway.

Final TakeAway

For me, the final takeaway is this – This is straightforward project conceived by a solid team of bright and talented developers who are creating something for developers. And if you look closely at the blockchain from the very beginning, this is a technology is essentially an invention by programmers. And not only did they invent it, they actively control it. For instance, the recent and future splintering of bitcoin with various hard forks – all decisions made by developers. The impending change from Proof of Work to Proof of Stake for Ethereum decisions by people who maintain the code – this is not going to change. And so a good bet, if you believe in this space, is a bet that 1) seeks to mitigate some of the obvious challenges of the technology and 2) places tools in the hands of those that control and can make the technology happen.

Stayawhile

Various Funding Models

I think before we begin this week we should spend a few minutes talking about venture capital, crowdfunding, and Initial Coin Offerings, or token sales, as they are more commonly called now. The reason is that this is the second week in a row that we are focusing on a company that is established and which has already been through a couple of rounds of traditional venture capital funding. And like last week, this company is turning to an ICO as another channel to raise money and to expand operations. First, let’s talk about venture capital. The main difference between banks a nd venture capitalists is that they first, expect equity in the companies they fund. Maybe the easiest and most entertaining way to learn about this somewhat traditional method of funding is to watch an episode of Shark Tank where you can hear all about the value of a company and the expectations of those that invest in it using this model. The type of vetting that goes on between the capitalists and the entrepreneurs gives you a little bit of an idea of why venture capitalists believe they do a service to business in general, by carefully analyzing and proving the team, their vision and their operational ability. But of the tens of thousands of businesses that form each year, only a tiny fraction will have access to venture capital. Thus, with the advent of the Internet and sites like Kickstarter and Indiegogo, the crowdsale was born. In this model, anyone can invest in almost any amount, and the accumulation of the crowd can provide enough money to launch a company. In this case, a video on Youtube of a prototype, a halfway decent website, and most importantly a good, marketable idea can result in as much or more money that capitalists might venture. This method has launched tens of thousands of products and thousands of companies. Now, the VC crowd argued that this method was suspect, at best, since who was vetting the companies? With a barrier of entry set as low as a youtube video, they argued, the vast majority of startups using this method would likely fail, since they weren’t put through the paces as they would be with VC involvement. But this is the same argument that was made by the publishing industry in the early days of electronic publishing, where they claimed that the literary world would be flooded with, charitably, works that maybe should not have been published at all. If you have a kindle, and noticed some of the ads that appear when you turn it on, you might tend to agree, although just because there has been a proliferation of less than stellar work doesn’t mean that there aren’t brilliant self-published books. It’s the same for companies. There are plenty of companies who might have been able to get through a round of Venture Capital funding, but that chose a crowdsale because they wanted a degree of independence. I had the pleasure of speaking with an individual just three days ago who had been through several rounds of funding himself, and he confirmed that while the VC world has its benefits with respect to connections and business, it also very often comes with strings – well, let’s say ropes, attached. The one thing that a bank will never do is tell you how to run your business. Some venture capitalists are not shy about offering that sort of strongly worded advice. So now there’s this new method of crowdfunding where there is usually a blockchain-based token that is issued and often results in a large amount of money raised in order to fund a project or a company. So what’s the main differences between this and something like Indiegogo? There are several – the first, of course, is the token. And whether or not the token is mineable, or whether or not the token performs a purely utilitarian function, and no matter what the companies say to discourage speculation, the fact remains that many , if not most ICO tokens end up on an exchange and are traded. And in some cases they increase in value – and dramatically. Not only that, even if the token that is issued doesn’t increase in value, the token that is collected as part of the sale – usually Ethereum and Bitcoin, does. This is not something that happens with Venture Capital. Capital raised by that method is money, and it’s spent. For instance, to take a modest sale – when the WINGS ICO took place in November of this 2016 the company raised just over 2,000 Bitcoins. At the time, this was worth about $2M USD. What is what they collected worth 11 months later? $8.4 M. So even if they spent half of the bitcoin they raised they still have left twice the USD that they initially raised.

The other difference between ICO’s at the moment is that there is almost zero regulation of them. The online Crowdsale industry has been around a bit longer, and there has been some clear direction from the SEC regarding these. But the added element of the token is something that has taken regulators by surprise. Recent action by the SEC, plus more aggressive actions by countries like China and Korea indicates that we are just beginning to see the regulation of these sales – but as of now, there isn’t much.

One of the most important differences between the token offering and venture capital is that by definition, and by the one thing that is clear from the SEC, is that token sales cannot offer equity in the company – or future profits by the company. Venture Capital is exactly the opposite, with expectation of future profit sharing as well as a percentage of the company in the event that the company is sold. Whether this lack of accountability in the ICO world leads to widespread abuse remains to be seen – and will be closely watched and reported on, I’m sure.

This company, which is operational with an existing platform, is intending to use a token and blockchain technology to fill some gaps that currently exist in the real estate rental market – but specifically medium-term rentals. Traditionally, medium term rentals, which are defined in this case as a rental between a month and a little less than a year — have been served by the corporate rental market in the last couple of decades, mainly in response to a more mobile workforce, and a more project-based economy. This is typically where there’s quite often a team of people working on a project with a beginning and more importantly an end, where the team goes home. But as the whitepaper points out, recent demographic trends have expanded this market a great deal. For instance, according to a research report by Bank of America Merrill Lynch economists and reported by Business Insider this June, it appears that the millennial generation, described as between ages 25 and 34 – are buying less and renting more. Part of this is because they are squeezed by 1.5 Trillion dollars of outstanding students loan debt, but some of it is as Stayawhile lists in the whitepaper, that this generation is simply more nomadic, and less inclined to set up a nest. There was one chart on this report that was striking, where it showed this age group over the last four decades, with a dramatic rise a living situation outside the standard domestic situation. This age group belongs to a generation where the place you reside is less important than what you can do – and its possible now to work from practically anywhere. Another very important point this report made was that this age group is flocking to urban centers. There is yet another exodus from the rural and now from the suburban areas of the country to the urban city centers. This trend is something that Stayawhile intends to capitalize on, by providing an upscale rental market in stylish urban settings with the convenience and immediacy that the millennial generation demands.

The other thing Stayawhile seeks to address is the great deal of difficulty that foreign nationals experience in finding a place to stay for months at a time, where credit worthiness is more difficult to prove, various internatioinal measures to establish trust don’t line up, and it becomes difficult and quite expensive for people to move as fluently across borders as it perhaps should be. And recent political trends in Europe with Brexit as well as political developments in the US seem to indicate that this situation of tightening of borders is not going away anytime soon. And finally, the Stayawhile platform plans to use the blockchain to create a much more efficient method of rental logistics – such as deposit, escrow and dispute resolution using mutli-signature transactions as well as smart contracts running on the Ethereum blockchain.

First of all, It’s important to note that this company has already been through a couple of rounds of private equity venture capital funding. So in terms of the company, our due diligence is pretty much done, and from a business leadership perspective, that’s a huge plus as well. Why? – well, my opinion is that it’s more efficient for us to let the venture capitalists fund our due diligence for us –- and also vet the team – and simply recognize that they will probably do a better job of it than we ever could. Not to say, of course, that we didn’t do our own looking around. And about that – I honestly think that if you visit stayawhile.com I would challenge you to find something you DON’T like about the way this company presents itself – from the original and pleasing design of the website, to the excellent way in which they communicate their ideas and themselves, to the resume’s and linkedin profiles – there are immensely talented people. Also, I have to say, this is absolutely the very first team I’ve looked at with respect to token sales that has a robot on the team – how cool is that, really?

However, there is one thing that we would be remiss to bring up, and that’s that there is no one listed on the team that has extensive blockchain experience – at least not that I could find. There are programmers – how could there not be , since they have a fully functional platform for rentals that they built themselves, so we know they can complete a project – but no specific blockchain specialists are listed on their team.

The Whitepaper

This particular whitepaper is quite good at presenting the business model and the potential market share of about $10 billion, and clearly shows how that market share is underserved and under-represented. The whitepaper also showcases, with photos of actual properties under management, the design and branding philosophy of the company. Section 2 describes the ways in which the blockchain can assist in solving some of the problems and inefficiencies in standard real estate transactions. The classic example that we see in BitCoin 101 classes, is the escrow problem. The landlord needs a security deposit which is held while the tenant occupies the property. At the end of the term, the tenant vacates the property, and if the condition is left at the standard specific in the terms of the agreement, the security deposit is released back to the tenant. Using a smart contract and a tokenized payment system, it’s possible to use a multi-keyed signature transaction where two of three keys are required to release the funds. One key for the tenant, one key for the landlord, and one key for a neutral third party. When the tenant vacates, they apply their signature. Now only one remains. If the landlord inspects the property, and finds is as agreed-upon, then they apply their signature to the contract and the transaction is completed. If, however, they find issues, then they can refuse to sign. The tenant would then appeal to the third party. Evidence would be presented by both sides, and the third-party would then presumably have the ability to adjust the payout accordingly and then apply their signature to release the funds. Presumably, the tenant and landlord would share in whatever fee the third-party would require for their service. You might ask “how is this more efficient than an escrow company?” It’s not mentioned in the whitepaper, but I can answer that – first, the escrow company is going to charge a fee regardless if they are required after all. In this case, a fee is only incurred if the service is needed. Secondly, we should presume that the people who provide this service will not require the typical type of overhead that an escrow company would require, and so the fees should be much lower. Third, there are no banking intermediaries between the escrow company and two sides of the transaction. It’s all one simple, but conditional, transaction.

I feel like this whitepaper does a pretty good job of showing precisely how specific functions and methods from the Ethereum ERC20 standard can be applied to specific business issues. One good example is that because of the relatively transparent nature of a public blockchain like Ethereum, it’s possible for one side of a contract to retrieve the balance of the account of another side of the contract. This can act as a sort of security measure, wherein the contract can be validated by capacity. Think, for a moment, how this is done in real life. I’m sure there’s plenty of you who have had to scan and email banking statements to prove that you have a certain balance in your bank account in order to complete real estate transactions. In this case, it’s done by maintaining a token wallet with a certain balance and using the blockchain to conduct all aspects of the contractual relationship between tenant and landlord. Furthermore, and this is not mentioned in the whitepaper, but it’s also true – the profile of a tenant becomes more transparent and their status is influenced by the “stake” the tenant has in the token. Needless to say, however, a token holder is free to create as many functional wallets as they need, so if there is an issue of privacy, it’s possible for them to obscure portions of their stake in the network.

Why the Blockchain?

And interesting approach in this paper is that in order to explain why a token should be used in their project, the authors invoke a blog post, and then go on to explain each of the author’s points in specific ways in which the token might be used in their business model. In an email exchange between myself and CEO it was explained that there is currently in place the consumption of API’s with various services to determine credit and background checks, and this refers to the reference made to a “pre-determined algorithm” to automatically accept or reject a member. Something I learned from the CEO was that in the US such companies must comply with the federal equal opportunity housing law, which prohibits discrimination on any basis other than a numerical algorithm, and of course they already have one. She explained that there are plans to build upon that when they build out the blockchain platform to use the token

So if we use our imagination can see, even if it’s not articulated in the whitepaper, how consuming API’s from background check agencies, and information returned from those API’s could be used in a the smart contract to approve membership – and perhaps reward the new member with a wallet and a small balance – this I could see. One particularly laudable section of the whitepaper is their treatment of the problem with differing international credit tracking systems and the idea of creating a blockchain-based Stayawhile credit scoring system. Now this is a good use of the blockchain, due to the immutability and transparency of the technology. The only slight issue with it is that if it’s used in its purest form, immutable means immutable – so mistakes cannot be reversed, as you can in a relational database with a simple update query. But of course correcting transactions can be added to the blockchain, which, if designed correctly, could have the same end result. The difference there would be that those so-called corrective transactions could be only performed by the holder of a certain type of key or token, if necessary. At that point, we start to slide into the concept of a permissioned blockchain – not a bad thing – but not specifically mentioned in this whitepaper.

All in all, this seems to us to be a well-thought out whitepaper worthy of consideration by anyone interested in ICO’s.

The Road Map

The road map shows an administrative portal in place by the end of the third quarter of this year, with the construction of the blockchain architecture and smart contracts initially deployed by the end of 2017. By the first quarter of 2018 we should see a token wallet and a payment system using those tokens. The second quarter projects the ability to waitlist properties and discounts, plus a priority mechanism. In the third quarter they plan to implement the FICO replacement concept with tokens to demonstrate creditworthiness. In the last quarter of 2018 they plan to implement supervised machine learning for optimal apartment pricing. This is an interesting point since there was in fact a paper published by some researchers at Northwestern that wrote a spider to scrape Craigslist which yielded about 4000 rentals and used a concept in machine learning known as a regression tree to accurately estimate what rental prices should be based on 10 separate attributes – like number of bedrooms, type of property, pets, parking. They found that using machine learning principles that they increased the accuracy of pricing rentals significantly. This is not something that is specifically related to blockchain, but it’s a nonetheless interesting feature for the platform. Some longer-term visions include things like internet of things with smart digital locks. I would imagine that could be tied to a smart contract where the apartment is unlocked based on a payment.

The name of the token will be STAY. The price as of the moment is not set, because of the fluctuating price of ETHEREUM.

The token sale begins on October 30th at 12 AM Eastern Time. And ends November 30th. The token issuance, if you participate, will happen starting in December. There are pretty aggressive discounts with a 75% discount for the first 25,000 tokens sold, and a 50% discount for the next 200,000 tokens sold. Then a 25% discount for the next million. Payment can be made using ETH, and they will be using KYC and AML screening – which is Know Your Customer and Anti-Money Laundering. The whitepaper lists what amounts to a soft-cap of 500-1000 ETH to be considered a success, and the paper mentions a refund if this soft-cap is not met.

The total token allocation is set for 50M. 55% will go to the Public sale, and 30% reserved for future use. 15% of the tokens will be allocated to the team.

In the whitepaper it’s not mentioned, but on the Telegram channel the CEO explained that team tokens – those are the tokens provided to the team, are locked for 6 months, and then 1/24th of the tokens are unlocked every month thereafter for the next two years. Unsold tokens are reserved for a future sale and that accounts for 30% of the tokens.

Reaction from the Community

The reaction from the crypto currency community has not been particularly passionate one way or another and there has been a lack of volume. Reddit, BitCoinTalk, and other channels have not had a lot of feedback in their announcements, although the team is obtained good advice on the telegram channel so we can expect that to change. One thing that has been observed on Telegram and is in fact quite true, that the high-trafficked sites that provide ICO listing charge large fees to get listed, and it’s hard to choose which, if any, will bring the results. At some point in our future we see a project where we investigate the relative success of ICO’s that obtain professional help from established teams in the ICO space that offering marketing and operational services.

Business Viability

In terms of business viability, we agree with the market that the Staywhile team has identified as the young and relatively rootless demographic, but we also see the other side of the demographic spectrum as well – that enormous baby boomer sine wave that has pushed through the last half dozen decades like an enormous marketing supertanker – the people in that demographic are similar to the generation y set – but more numerous. And many of them have the same rootless attributes as do the younger generation. So from our perspective we see two similar but interestingly different markets for the medium term housing market, as retirees seek more meaningful experiences abroad. Right now, of course, the Stayawhile footprint remains in the US, but it’s clear that plans are in the works to move to at least major cities in Europe and elsewhere.

Final Takeaway

For me, the final takeaway is this – Stayawhile is an attractive and estabished company that has already been vetted to some extent by the venture capital world, which is a plus. They have a pretty solid idea, and there are certainly valid users for a tokenized system – for instance, the replacement of a FICO type of system, and using the blockchain to reduce fees, and streamline the vetting process seems reasonable and valid. The team is quite willing to communicate in our experience, and we wish them the best in their sale and then subsequent project.

The following exchange was between ICO 41 and Dror Medalion, the CEO of bitJob.

Owen Scott: What is the mechanism available now to validate a student ID? Are there API’s available to consume directly from Universities, or are there third-party services that make this validation possible?

Dror Medalion:Currently, We are working on developing this Mechanism. The students ID’s lists will be withdrawn from the unions manually or by API’s. Depends on the institute ability, then those will be stored on the blockchain, and once a student will register, his records will match. Currently, we will start our pilot with the institutes that we already in partnership with us. There are also 3rd party services for this process as well that we are considering. That can help us validate the student’s lists, but the goal is not to limit any student worldwide, it will be our job to review his registration form, and collaborate with his institute.

Owen Scott: In the flowchart on section 1.3, it appears that the main form of payment between the students and employers would be PayPal, and that the token would be used (at least at first) to provide fees, distribution to affiliates, etc. But then in section 4, it’s mentioned that “The employers will not be able to hire any of the available service providers until they have a sufficient amount of tokens in their account to be able to purchase a minimum quantity of service set by the service provider.” Does this mean that even if Paypal is used, fees for service will be stated in tokens? And even if employers were planning to pay in Paypal, they still have to be verified through their stake in tokens?

Dror Medalion:bitJob is a Hybrid Model, it will support both means of payment – FIAT money (Paypal) and CryptoCurrency (STU). The Student will choose rather he wishes to get paid by Fiat or STU. If he chooses to get paid by STU and the Employer chooses to pay in Fiat, we will exchange that FIAT in the open market for STU, and pay the student. The Employer will be able to hire anyone he chooses based on the student records and Reputation. (and vice versa).

Owen Scott: Will the lending program described in section 4 provide interest, and would it be executed through a smart contract? Would the smart contract lock any loaned funds from the loaner in the event that the barrow loaned tokens were locked in escrow during a service transaction?

Dror Medalion:The Loans are a part of a futuristic vision we had for our revenue model. it will not be deployed in the first version of the product. STU token will not supply any interests or dividends to the token holders, It’s a utility token and not a security. Having said that, Yes, Our goal in the future is to create a p2p loans structure which will be executed on a smart contract.

Owen Scott: There’s one statement in section 5.5 – in order to enter the crypto-currency market a person needs access to banking. Not necessarily. I have two kids who have bitcoin wallets because they are leasing their video cards through Nicehash. They don’t even have bank accounts yet. (Maybe they never will .. wishful thinking :>)

Dror Medalion:That’s nice! 🙂 Most people though still use the banking system obviously, and we hope that by using our platform, more people can earn in Cryptocurrency and spend in Cryptocurrency, all over the world, reducing the need of Banking services and fiat exchanges.

Owen Scott: Section 11 shows some very promising and interesting methods of participating in the network and earning/minting new coins. The third option is pretty clear – that would be students providing services paid in tokens, and you have that spelled out. But the others are not going to be “paid” by employers – so who would validate that the work/service/help that was provided to earn tokens was worth the distribution of the token? This would seem to be needed to be done by those that control the token supply – bitJob, right?

Dror Medalion:Yes, exactly, bitJob will pay STU’s to certain activities, like Affiliate efforts, this will not be paid by employers, but by bitJob itself. So for example, by bringing your friends to the platform, you will be compensated with STU tokens.

Owen Scott: What can be done to prevent Sybil attacks from “employers” – students have the student ID – how are employers validated? (this is also mentioned as a risk/annoyance in 14.4)

Dror Medalion:Well, First, in order to accept an Employer to the marketplace we will review his request and approve it based on our DD process. That will be the first phase of protection.

Secondly, same as in other marketplaces, like ebay, or Amazon, both sides should be reviewed by their reputation and ranking. But – if this is the first time an Employer is using the system, BitJob is guaranteeing a protection from Fraud, meaning all transactions will be ensured that in case and Dispute will rise, we will pay the student for his work. We will make sure no Student will be harmed by using our platform.

Owen Scott: Does it have to be a university? I have two kids in high school who are more than capable of providing services, but they are high school students. Would this be possible?

Dror Medalion:Yes, this will also be possible, but currently, the penetration market and Pilot is for students and Academic Institutes. High School kids are capable of doing many things (Sometimes more than we are 🙂 ) and we need to provide them their own segment and job offers.

Owen Scott: Do you have a definition yet for “Educational Organization” since there are so many different types of non-traditional educational organizations these days?

Dror Medalion:The main vision if Universities and Colleges. But we all know that in many parts of the world, especially in India there are many institutes which are not aligned with the Formal Academic degree we all know. Those institutes will also be accepted after we will do our DD about them. In general Educational organization can also mean The Student Union itself, or other organization that unites a group of students, like a “Bitcoin Club”, a common thing these days.

Full Post :

What we have found, almost since the beginning of the podcast, is that each week our analysis leads us to another general note that we feel that we need to make before we start, and this week is no exception. What we have learned in the last week of analysis and which we want to share with you is the degree to which it is evident when a company that is preparing to launch an ICO or token sale is relying on professional assistance for the execution of the sale, and the preparation thereof, or not – and the implications of that type of assistance. In fact, I’ll go as far as to say that this has actually led to a slight adjustment in our analysis methodology. We will now add one more data point and potential brief discussion – whether there is evidence of professional assistance. Now look – this doesn’t mean that we will be making any generalized judgements in relation to this – we are simply going to observe it, and note it when appropriate, and over time, and as we check back in with some of the ICO’s that we have analyzed, it will be interesting to see just what the significance of this data point is.

To be clear, I’m talking about specific organizations who provide services to assist in the preparation of token crowdsales. Companies like TokenMarket and Amazix, and others. The reason we are doing this is because what we have found recently is that when we analyze token sales that appear to have some sort of assistance from organizations like this our jobs are as analysts and potential investors is much, much easier. Why? Well, everything is in place – community interaction, communication channels, repository of information like whitepapers and github – usually a rich store of instance information.

There’s another thing I wish to point out – our stance, as it were. I don’t think we have ever expressed ourselves with respect to where we are with the concept of blockchain and ICO’s. So I want to do that now. As we dive into this space, our most general approach, and our starting point stems from what we should call a positive position. That’s where we start. The benefit of the doubt, so to speak. To be specific, while we understand some of the technology challenges facing blockchain, and while we understand that use cases are sometimes being stretched, we by and large generally believe that the potential is there to change fundamentally the way in which products and services are distributed and consumed. And we believe it can change it for the better. What this means, in a way, we wish all sincere ICO’s could be a success, simply because we wish to usher this new era in. We also believe, however, that there is a certain amount of gold-rush mentality happening right now, and that the only way we can decipher the differences between those two points of view requires sincere and open questions, with intelligent and balanced analysis. And finally, we can’t and don’t – know everything. We would LOVE to hear more comments from our listeners, as well as reviews on iTunes of course – but we would also welcome comments as to how we can be better. So I’ll ask that you please visit ico41.com, click the email address link in the contact section, or fill out the contact form – or post a comments on any of our blog posts – and we’ll certainly respond to any sincere questions or comments. Thanks very much …

This project seeks to create a global, decentralized marketplace for Student Employment. Let’s say fiverr, upwork, elance and guru … but specifically to serve that segment of the population that faces the catch-22 of so many students, where they begin to look for their first job after college, and find it difficult, many times because they lack the portfolio of work that is so essential these days. I’ll say right out of the gate with this project that I found a LOT to like. Some of this might be due to the fact that I myself have some kinds who will be facing this issue in the near future, and that’s certainly what drew me into this project, but as I dug into the details of the whitepaper, looked carefully at the team, and then observed the execution of their token offering – which is going on right now and soon to end – I became more and more impressed.

Company and Team

The company is based in Israel and the founders have been involved with the project since May of 2016. As with some of the other ICO’s we have studied, the project itself and team is more important than the corporate structure. In this case, there is a working beta platform running on the blockchain – which to me is more important than company structure. I was able to sign up on an alpha platform within minutes and obtained an ethereum address as part of the signup, and watched as a smart contract executed. I was provided with the address plus 400 tokens in the alpha network just for signing up. I’ll describe this in some more detail later, but the point is that the team has proven to me that they can build something on the blockchain. And let’s talk about the team. In this case we have a very strong set of credentials in blockchain and ethereum programming. One of the senior developers has been on no less than four concurrent projects , and has taught blockchain development in Switzerland. Another member of team wrote an article about crowdfunding using BitCoin back in 2014, before the ERC230 token craze that we are seeing now. The CTO himself has as list of projects that all involve smart contract development using solidity. He has been consulting in technology for well over 20 years, is extremely active on Linkedin and has about 6,000 followers on that platform. This is a large team with 17 main members and a dozen advisors. After looking at the credentials and background of this team, there is no doubt in my mind that they can build what they have designed in the whitepaper.

Whitepaper

Just like this team, there is a LOT to like about this whitepaper. First, I like the fact that the whitepaper itself is in version 3b, which means we are seeing the end result of an evolution of thought. And if you dig, you will find evidence of this evolution through a series of medium articles,early reviews and then responses to those reviews. Secondly, the very first thing that jumps out at us is that the authors recognize that a hybrid model is required for immediately adoption. What I meaen by hybrid model is that some aspects of the system – such as payment for services, will feature paypal, which is the method most in use now in sites such as fiverr, upwork and others – while the token on the network will immediately serve more utilitarian purposes. I think this is an important point, because many whitepapers present an elaborate block-chain only design to create marketplaces, govern transactions, provide payment systems, and operate entire ecosystems of processing, without a thought to just how long that will take to construct. This whitepaper, in contrast, presents a model whereby a working system can be presented and operated sooner, with a road map that deploys blockchain technology in phases. This makes sense to me, and leads me to believe that with this project we we will be seeing a platform that is workable in a reasonable timeframe, with users logged in and the system functioning in a commercial sense relatively earlier in the development of the platform. Remember a few weeks ago when I dropped in on the Golem project and found that after a year past their very successful crowdsale there was barely a beta to log into. This whitepaper inspires some confidence in me that their goals are more achievable and sooner.

The basic architecture of the system consists of three main actors and two major systems – The actors are Students, Employers and Affiliates, and the main systems are identify management, and process control. Essentially, Students with talent provide mainly digital services for employers with projects that need help. Affiliates play important roles in providing the ability for these two major actors to connect with each other and to help market the platform. An example of an affiliate would be a student union, which would be rewarded for brining students to the platform.

Identity management is critically important because of the problems that plague some existing work-for-hire systems , where fake projects waste the time of students who wish to work, while bad actors also prey upon employers who have projects that require qualified staff.

The token provides the fuel to run the network, with the initial ability to provide affiliate fees and rewards for retaining the tokens in the network through an interest-bearing proof of stake mechanism, which reminds me of other proof of stake platforms like bitconnect, which is mainly an investment vehicle where members are strongly incentivized to re-inveset their tokens. Tokens will also be used in establishing and maintaining reputation profiles. Token will also be used for voting power to make decisions regarding the network. Tokens will also play a part in the bidding process for services and projects.

What I found interesting in this whitepaper was a discussion regarding the inequity present between people in various countries. It’s this economic imbalance that actually drives a great deal of sites like guru, fiverr and upwork. BitJob mentions the possibility of future token sales with tokens issued that are specific for a country as way to better tie correlation between a country’s pay levels and value of services. The whitepaper refers to the use of country-specific smart contracts which are relevant to the appropriate currency, as well as the ability for country-specific tokens to perform differently on crypto-currency exchanges. A lot of whitepapers deal with international components, but this seems like an original approach that I don’t think I’ve seen before.

The Road Map

The whitepaper was first published and the site came up in February of 2017. There were some pre-sale announcements before the private and public sales. In October of 2017, after the sale is over, the token disbursement will occur and they anticipate listings on exchanges. There will be a private beta launch in November of 2017, which I believe could easily happen, since they are already have a working alpha release. There will be a public beta release in first quarter of 2018, and the platform will be opened for developers shortly after that. They anticipate a product launch in the second quarter of 2018. Please note that in case you don’t end up participating in the ICO itself, you could potentially purchase tokens on an exchange, and then you should be able to participate in the private beta. This is not confirmed yet, but if I find out more I will be sure to update our site at ico41.com.

The Token and the Technology

The token is STU and will be an ERC20 token running on the ethereum blockchain.

The token itself as well as the progress of the can be monitored on Etherscan.io – just type in the abbreviation of the token STU and it comes right up. You are able to see the distribution of the token itself. In terms of utility, voting rights are provided by anyone who owns the token, and the amount of voting power is provided by how much of the token you own. A proof of stake mechanism encourages storing tokens in the platform, and there is the capability of minting tokens through a variety of activities, such as conflict resolution, new member registration, reputation scores, support provided for new members, running community forums, and more. It should be understood that this is NOT a “proof of work” consensus method. What I mean is that the concept of “minting” in not precisely the creation of a coin like bitcoin or ethereum works – rather, the tokens all exist now, and through what I imagine would be a series of smart contract, the so-called “minting” of coins would really be a transfer between the wallet that holds the reserves of the token – you can see it on the etherscan as holding about 96% presently – and the wallet of the member. This is my understanding, although if I get more clarity on this I will certainly post an update on the ico41.com website.

The Presale

The presale started on August 2nd ended on August 16th . The pre-sale raised $1.5 M.

ICO Details

The ICO began on September 12 and ends on October 13th.

The price of the STU coin is 888 STU for one ETHER. The current price of ETHER is about $310 USD at the time of this podcast.

The soft cap – which is referred to the minimum funding goal is 2.250 ETHER, which is about $675,000 and has been achieved, so the project will move forward

The hard cap , which isn’t quite stated as such, but exists if you do the math, is about $70,000,000. What I mean by the math is that the maximum number of tokens issued is 200,000,000 and with a price of 888 tokens per ETHER – so the maximum amount that could possibly be raised is that division.

From what I can tell, the ICO is proceeding without a hitch and is successful, as their first milestone is almost reached, which is 7,500 ETHER. This equates to about $2.5 M. If you add the pre-sale of $1.5 there has been about $4M raised so far.

One of the reasons for such a smooth token sale is probably the involvement of both TokenMarket and a company named Amazix – both with solid track records in helping companies launch successful ICO’s.

SEC Compliance

In terms of SEC compliance, there is no evidence in the whitepaper, nor in any of the communication from the team that this token will be used in any other way than to provide utility, and there is no evidence of what the SEC might characterize as “passivity” in terms of the relationship between those that manage the tokens and those that hold them. Meaning, there are voting rights, as well as other utilitarian uses of the token throughout the network architecture. The official word regarding this sale is that it is closed to U.S. investors, but of course there will be a secondary market if you happen to be a U.S. resident and wish to join the community and use the network.

Business Viability

In terns of viability we already see a great deal of success and activity on platforms that are already used by the target group, such as Fiverr, Upwork and Guru. We feel that the business concept itself is sound, but in this case it is made more sound by activities that have taken place on the business side of things by BitJob itself. I’m referring to the partnerships that they have in place, where BitJob has formed partnerships with universities such as Berkely, Concordia, McGill, the Ivey Business School at Western University, and the Cypress Interenational Institute at Cypress. The company issued a business development plan that showed the activities expected at the current level, which is between $2.5 and $10 M USD, that there would be on-the-ground marketing at major American and European universities, ios and android apps, STU-based debit cards, and large-scale marketing.

Community Reaction

The first thing I want to say about the reaction of the community is that this particular sale stands out from what I have seen in the sheer community involvement. There are more than a dozen channels listed, from BitCoinTalk to WeChat, to Talk, to linkedin, Facebook, youtube and Github. Their first announcement on BitCoin Talk about the token sale took place all the way back in June and the thread has 22 pages of comments. They received early and enthusiastic encouragement from senior BitcoinTalk members, and that continued until mid-August when the thread was locked by an admin for a procedural issue. On reddit there are many topics, with many comments and they are overwhelmingly positive, with a very few negative The Github presence is significant, with three repositories, and the pilot application updated in July, and the smart contract added in May. The telegram channel was well-maintained by various team members and also partners like Amazix. I have a few questions that are being forwarded to the CEO, and I will post them on the ico41 website as soon as I have answers to them. What is particularly interesting is that the team deliberately floated the idea early, and then allowed the community reaction to help guide them in their thinking, which developed into an evolved concept. In this way, the project has benefited from a long and active involvement with the blockchain community.

Gotchas

The main gotcha with this is the decision not to burn the unsold tokens to reduce supply. The CEO posted a long article on Medium titled “an In-Depth Explainer on the unsold STU Liquidation Process – post ICO.” This reason for the article was explained as a response questions from the membership. It’s a valid question, because many ICO’s have a policy to burn unsold tokens in this type of event, and there are 200,000,000 tokens issued. This means that about 95% of the token supply will be unsold. The CEO explained that the tokens would not be retained by the team, nor used to compensate advisors, contributors, or employees. They won’t be traded with employers, and they will only be released over a period of 5-10 years through the affiliate program. The affiliate program is what the CEO calles the “value creators” of the system, and so the token will be used to reward that value as it is created on the network. You can read the entire article at Medium and decide for yourself. My personal feeling is that there is too much reputation here at stake for the team to damage their standing in the community over this. So from my perspective I am willing to give them the benefit of the doubt with respect to this decision and I trust that they will do the right thing.

Takeaway

Our final takeaway from this ICO is that we believe this is worthwhile project with very little negatives, a very strong team, and an almost flawless execution. After performing these analyses for some time now, I’m a little surprised that this project is not generating more revenue, but if you think about it, it’s more of a grass-roots project, a bit more sincere and altruistic than some of the more hyped projects, and has no billionaire celebrity investors attached to it. In a way, this could be a good thing in the long term. Because it could mean that the token will be a bargain on the exchanges and will grow in value as the idea and platform grows. If this is the case, then there could be upside potential as the token value starts low and grows organically.

This week we have decided to change it up a little bit – instead of focusing on just one Initial Coin Offering, we will be analyzing two ICO’s launching more or less at the same time and in direct competition with each other, since they are both related to the relatively new industry of eSports, and because both of them have interesting stories in their own right.

But first let’s define this concept of eSports with a little bit of a very recent history . So just case you yourself are not an avid video gamer, or in case you aren’t a parent of an avid video gamer, you might not know that video gaming itself has evolved into a global spectator sport. By this I mean people who watch other people play video games. And I’m not just talking about a half dozen teenagers crowded around an xBox, fixated on one or two of their best buddies hammering each other on Hearthstone, I’m taking about hundreds of millions of people. It started as early in the late ninetities, believe it or not, and then accelerated in 2010 with the advent of Twitch.tv. At this point, specialist researchers like NewZoo who closely track this industry have issued a report which projects the 2017 revenue to exceed 650 million dollars, and is not showing signs of slowing. This money comes mainly from tournaments – attracting millions of viewers online – courtesy of such platforms as Twitch.tv, Douyu, Mixer, Smashcast, YouTube, and even YouTube Gaming – but this money flows through a wide variety of channels – such professional player sponsorships, game publisher investment, media rights, advertising, as well as tickets to events. If you want the full story on this fascinating development, head over to NewZoo and download their latest report. It’s a pretty fascinating read.

To give you an example — just one game named Dota 2, since 2013 when the game was released, there have been 786 tournaments with over $126,000,000 awarded in prizes. In Seattle, about a month ago ,Team Liquid, which consist of five international players too the first prize for Dota 2, which was worth almost 11 million dollars.

But the ICO’s this week under review are not trying to take on the likes of Twitch.tv . YouTube Gaming and Smashcast – they are working on proposals to use the blockchain to provide the ability for spectators and even the gamers themselves to gamble on the outcomes of these tournaments. I suppose this would be inevitable – the proceeds of gambling associated with sports has now for a long time dwarfed the proceeds collected by the sports industry itself. According to the Harvard Political Review, Americans bet about $95 Million dollars on College Football and the National Football League in 2016, and that’s the same year that the NFL had the best year ever – at $13 Billion dollars. So if the rough factor of 5:1 applies to eSports, then the potential market for this endeavor is not what you would call trivial.

Now, because we are taking two of these ICO’s on, the format will differ slightly – yes, we will use our usual 14-point review, but these will be a little more brief, and more importantly, we will highlight the differences of each. If you are curious, the main reason for the slight departure this week is that I feel that both of these ICO’s compared and contrasted tell a more interesting story than if I had just picked one of them.

Both of these ICO’s seek to provide the ability for fans who are attending or viewing live streamed tournaments to place wagers, in real time, on various aspects of the game, and both of them provide for players to bet on themselves, thereby facilitating a revenue stream for players, which don’t really have a stable revenue stream, even with today’s multiple streaming channels and over 2000 tournaments per year. If you think about it, unless you are one of the very few winners of a given tournament, playing in a tournament is an expensive proposition that has to be somehow offset with a revenue stream when you are not competing in a tournament.

The two companies and the two token sales, are quite different. Let’s look at each:

UNIKOINGOLD and UNIKRN

The company behind UnikoinGold token offering is UNIKRN, which is a company that has been established for two years and already provides an existing platform to allow online wagering for eSports. Wherever it is legal to bet on esports, you can bet using fiat currency, but if you are from a country where it is not legal, you can bet using a token, which will then allow you to do certain things on the platform – but not convert it to currency. It’s important to understand that this existing token and method of wagering at UNIKRN has nothing to do with the blockchain – yet – the ICO is about creating an Ethereum-based ERC-20 token to re-boot the platform and use clochain technology to drive it. This company is by no means the largest and most successful online betting platform for eSports, since this market was developed by companies where it’s legal to make sure wagers, such as Britain, and the real heavyweights are British companies like Betway and William Hill. But this is an established company, and I should also mentioned that this is one of Billionaire and celebrity investor Mark Cuban’s 77 portfolio companies. We’ll mention that again when we discuss the pre-sale.

GIMLI

The company behind Gimli is very much like most ICO’s which is essentially no company per se, but a collection of team members that have gotten together to launch the token sale. It started in Febrary of 2017 – essentially as an idea, and a project. There’s no actual evidence at the moment of a company. So in this case we need to focus on a team. Most of the team members are French, with a few other nationalities represented – they are mostly young, and seem to have respectable business backgrounds, and there are at least two engineers who have some blockchain experience. One notable thing about this team is that there is an all-star line up of “eSports Advisors” who are essentially former tournament winners in eSports, with notables like “Skyart” who has not only won tournaments but become an eSports commentator.

TEAM

The business side of the team over at UNKRN consists mainly of Rahul Sood, who sold his first company to HP, then moved over to Microsoft to run their startup venture group, then founded UNKRN. For the launch of the token, UNIKRN has chosen a couple of engineers with experience in the blockchain and bitcoin initiatives.

When looking at these companies, we can say that they represent two very different voices from the eSports community – UNIRKN being the sportsbook side, and GIMLI representing the eSports players themselves.

WHITEPAPER

Let’s look at the two whitepapers. The UNIKRN whitepaper is eleven pages long, with about 9 pages of actual content. And the content is pretty much nothing like any other ICO whitepaper in that there is zero technical detail and a few paragraphs about what the token will actually do, which appears to allow people to more easily monetize their existing platform – and to – and this is in a couple of places – “Attract the crypto-currency community.” The title of this whitepaper is “A Decentralized Esports Gaming Token” but the word in the title is there the concept of De-centralization ends. Essentially, the existing “UNIKOIN” will be replaced by an ERC-20 Ethereum-based token named UNIKOINSILVER and there will be another ERC-20 token named UNIKOINGOLD which will be the coin traded on exchanges and will allow the simple monetization of the UNIRKN platform. The impetus for the move to crypto-currency was probably best described in an interview with Reuters, where the CEO explained that the reason to move to crypto-currency was to bypass banking institutions. Fair enough – because that is, after all, one of the great benefits of the blockchain – peer-to-peer transactions, but there is no evidence whatsoever in the whitepaper that the company will use a decentralized platform for the management of the token. One of the key tenets of a decentralized platform running on the blockhain is that after the token is released, it’s governed by the terms of the smart contract, and NOT by the ongoing management of an entity – that’s the central tenet of the smart-contract based ICO. This is not the case here, and so we should conclude that this model will not include that sort level of decentralization and egalitarianism when it comes to the token and its uses. Other serious ICO analysts have pretty much thrown their hands up and said “I can’t perform any kind of analysis on nothing … sorry.” And I happen to agree, from a technical perspective.

The Gimli whitepaper twice a long, and is much closer to what we would expect in an ICO, from a technical standpoint, where there is some level of details with respect to how the token will operate. There’s a mathematical formula to describe the concept of dynamics odds-making, and detailed process flows where the interface, written in Javascript, touches the backend Ethereum blockchain. They also show methods pulled from the code and describe how they would function using human language. Essentially, it’s a well-written and respectable paper – which makes it even more surprising what happened during the presale and ongoing token sale – something we’ll discuss in a moment.

The interesting thing about the GIMLI whitepaper is that it is written and conceptualized very much from the point of view of the person who competes in tournaments and more importantly who streams on such platforms as Twitch.tv. It’s worth noting that this whitepaper mentions a problem to solve that the UNIRKN whitepaper ignores – and that’s the difficulty that professional gamers have in monetizing their efforts during live streaming of gameplay. It’s mainly done now through donations from Paypal and other revenue channels, which very often turn out to be stolen identities and accounts, and which result in a large percentage of chargebacks. This is a real problem for video streamers, and I suppose it’s understandable that UNIRKN doesn’t address it, since their existing platform has nothing to do with video gameplay streaming, per se. But I do feel that it’s worth noting as a difference.

Road Map

Gimli started the idea in February of 2017 and by June they had some smart contracts deployed on a test net. The pre-sale occurred between September 1 and Spetember 15, and the main token sale started on September 18th and is ongoing now. They have an ambitious plan to have a public beta of the platform by the end of six months, with project completion within 12 months of the end of the ICO. That would be October of 2018. Oddly, the last item in the timeline is for the future and it mentions an “Oracle based bet resolution” system – which doesn’t sound quite decentralized – and I presume that would be what is known as “off-chain”. I asked the question on Discord and didn’t get an answer.

The road map for UNIKRN is very basic, with three major milestones. On November 5th, they plan to have renamed their UNiKoin token to UnikoinSilver, and will have issued UnikoinGold, the ERC-20 token, for Limited Juristictions and Full Jurisdictions. Then in the first week of January 2018 they will add subscriptions, betting bonuses, access to live and pre-match sportbook, and subscription jackpot rooms based on your jurisdiction. And a month later, in February of 2018, the platform will be complete. Late on they will work future projects into the system with donations, casino games, and tournaments.

Presale and Token Sale

For UNIRKN, there does not seem to be a structured pre-sale, except for an invitation-only period from 9/15 to September 22rd, when the public sale started. I should mention at this point that there are a lot of celebrity investors starting with billionaire investor Mark Cuban, who funded the company originally two years ago, and that’s when it was added to his “portfolio” which currently lists about 75 companies presently. There has also been a lot of press since June, when it was widely reported that he will participate in the ICO itself, and this came weeks after he tweeted that Bitcoin was a bubble. I should point out that this is a position that is typically simplified by the media, in which they can’t make the distinction between a comment like that and the blockchain itself. As it turns out, the CEO of UNIKRN pointed out that it was Mark Cuban himself who suggested to UNIRKN to start looking into incorporating crypto-currency into the existing platform. There are also some media stars investing as well, such as Ashton Kutcher, Shari Redstone and Elisabeth Murdoch, although it’s not immediately clear whether these investors appeared two years ago or whether they plan to participate in the ICO as well. Thpublic ICO started on September 22rd at 6PM and today, on October 1, about $27 million dollars of ETHER have been raised. The sale ends on October 22nd. Particpants will receive their tokens on November 5th.

I should also mention that the sale is not being conducted using an ethereum smart contract, but through a company named Zeppelin, which offers an alternative. This is an interesting development, and it was explained that it was done due to “recent legislation in the U.S.” The sale is open to U.S. investors. There is no soft cap and the hard cap is set at $100M. No single participant can invest in more than about $300,000, which is in the spirit of maintaining an egalitarian crowdsale, and not a bad idea when you literally have billionaire sharks circling around.

Let’s talk about GIMLI’s presale and sale. It’s worth mentioning that the pre-sale and the sale are closed to US. Investors – the usual explanation was offered on Discord (our attorneys advised us that US Regulations are ambiguous, yadda yadda) and the ICO began on September 18th. And given the news in the last couple of days that the SEC finally got around to prosecuting its first two ICO’s, it’s not terribly surprising.

The GIMLI presale and sale, however, I’m sorry to say, would be charitably described as a disaster. And this is why it became apparent to me that I needed to cover these two events, and contrast them, because this is the interesting thing. It could be argued that GIMLI had a whitepaper that was more thorough, a team that had more experienced with blockchain technology, and a concept that was more aligned with both the crypto-currency world in terms of decentralization, and even from a political standpoint of serving the little guy, so to speak – the professional and semi-professional player who has a set of monetization problems that can be solved in a very classic way of using a distributed currency for direct peer-to-peer transactions, as well as ways in which to benefit from wagering without a centralized bookmaker. All of this was in place. And yet, through a series of very serious mistakes, it looks like perhaps the entire project is in question at this point. The pre-sale ended on September 15, and according to the website, they sold about 18 million tokens – which would amount to something like $7 M U.S – but this is in conflict with an announcement made on medium where it was stated that what amounted to about 1.1 M USD was collected. I’ll try to piece this together in a moment.

The sale started September 18th, it appears that the sale has slowed to a crawl amid some serious issues. The trouble , as I tracked it on Discord, started on the 18th , when some investors in the pre-sale noticed a large transaction entering the contract – and because this sale is transparent as a smart contract you can examine the transactions on etherscan and watch the tokens flowing. This led to a series of questions to the team where it was eventually explained that some pre-sale negotiations with some large Chinese investors fell through when China shut down bitcoin exchanges and effectively outlawed certain aspects of trading bitcoin. So the Chinese investors, which had promised GIMLI about 7 M, pulled out of the pre-sale, which then caused GIMLI to change the terms of the sale – and cut the “soft cap” of the sale in half. Now if you do the math, I should explain what a soft cap is — from the perspective of an investor, the soft-cap is the amount that must be raised in order for the sale to go through, and if that soft cap is NOT reached then investments are returned. And most ethereum smart contracts, especially for ICO’s have a return function – about eight simple lines of code – that returns the investment if the soft cap is not reached. Turns out that this contract didn’t have one – which is a very basic mistake. If you search online for a basic tutorial how to code a smart contract for a crowdsale you will find that just every tutorial mentions the return function, and just about all ICO’s that have soft cap abide by it. The fact that there was none in this contract, coupled by the fact that GIMLI changed the terms of the soft cap and also drastically reduced the scope of the project in order to accommodate for 8 M less dollars did not sit well with the investors in the pre-sale. They began to demand their money back. And over the course of five days, the team promised that they would be refunding the money of anyone who requested, on the 29th, it was announced that no, in fact, they would not be refunding anyone’s money – and they pointed to a legal contract (not the smart contract) which mentioned that there were no refunds. They also went through some ridiculous attempts to quell people’s concerns by announcing a doubling bonus for new investors, which was so poorly received – can you imagine how the presale investors felt about that one — that they fell all over themselves apologizing and immediately withdrew that announcement, and then added a 5X bonus for pre-sale investors that will issue 5 X the number of tokens issued during the pre-sale – this was designed to calm pre-sale investors, and to also help mitigate the cries of outrage from the pre-investors Needless to say, the crypto community has not responded kindly to this series of events, and the sale at this point is barely collecting an ether a day. It has slowed to a crawl, and it’s not quite clear whether they will even reach the soft cap that is now half of what it was earlier.

You might ask that if the smart contract is indeed open source and could be examined by potential investors – that those pre-sale investors should have looked at that smart contract and noticed that the Return function was missing. You would be right about that – they should have, but they didn’t. And so let this be a lesson, I suppose – and a good piece of due diligence to follow when considering investing in these ERC-20 tokens issued through a smart contact.

Another part of this that interests me is that it makes you wonder how valuable these so-called Advisory boards really are. First, during the time all of this was going down – right when the token launched there were people asking these questions on Discord and the team was off doing the things they probably should have been, like speaking at events, etc. – but where was the advisory team? Not only on the Discord channel to put out fires, but to advise them in the first place of what to do from the beginning. An example is that the CEO on Discord, in a lively discussion about what a soft-cap means, gave his explanation – a soft cap is the minimum amount that a project needs in order to get a product out the door. And yet, the team based their original soft cap not on that – but on how much money they figured they would make to help them achieve the soft cap more easily – and not have to refund investor’s money. Where, I have to ask, were the decades of business experience to advise these young entreprenuers that seems to be evident from examining the resume’s of the so-called advisory team. How much advising really goes on. When you look at the distribution of these tokens you always see a healthy percentage going to the advisory team. I’m not usually cynical, but I think it would be naïve to imagine that some of these advisory teams might actually consist of some very valuable posted photos and biographies, and not much more than that.

The Token

UNIRKN for the token will be UKG and will be an ERC-20 token operating on the Ethereum platform. The coin will be used for in-game purchases, for betting in Full Jurisdictions, prizes, and tipping. The current token named Unikoin, which is not a token running on a blockchain will be renamed to Unikoin Sliver – this will not be an ERC-20 token, and it cannot be withdrawn from the platform. The CEO has responded in interviews with all of the right responses to ward of speculation and run afoul of the SEC – like that they are focused on the platform and not thinking about exchanges, but I can imagine there is a very high likelihood that this token will be traded on Exchanges shortly after the ICO is completed. There is a sliding scale of value where the value of the token will actually rise depending on the turnout of the ICO.

GIMLI – this token is GIM, and is an ERC-20 Ethereum based smart contract, and can easily be looked up on Etherscan. The price for the GIMLI token is set at 700 GIM for 1 ETHER. There is a 5X bonus for everyone participating. This effectively means that the price is 3,500 GIM per ETHER.

Business Viability

In terms of business viability, there is clearly an enormous market for this. On the UNIKRN side, I have little doubt that the introduction of crypto-currency will facilitate a big part of what that company does on a daily basis and will almost certainly result in the growth of the platform as a sportsbook. And as I noted earlier, the growth of both the Esports industry and online gambling together ensure a viable business proposition. On the GIMLI side, there is no question that the players would find this well-received and would eagerly participate in any way that would facilitate a more stable revenue stream.

For me, the final takeaway is this – while we do our level best to perform these analyses by reading the whitepapers, examining the team, looking carefully at the technology, we are finding that there is more to running a successful ICO than a good whitepaper and a solid team – there is also there actual operation of the ICO itself. This is especially important if you don’t already have a successful company and an A-list of investors behind you like UNIKRN does. I would argue that the main reason why UNIKRN didn’t have a brilliant whitepaper and an all-star list of ehtereum blockchain developers is because they didn’t need to. What happened to GIMLI is a cautionary tale not just to investors, but to any group of bright individuals with good ideas who want to launch an ICO without an established company. The message is clear – find yourself someone who knows how to run an ICO and run it well and let them lead you. We saw this with Health Nexus last week in their choice to go with Token Market.

This also calls into question the purist approach. What I mean by that is that a project for blockchain is valuable because it meets a certain set of standards that stem from the foundation of what bitcoin and Ethereum promise – a truly decentralized platform, a trustless network, and a series of rigidly enforced smart contracts with no central authority. While in some interviews, some of the UNIKRN team has made some vague overtures toward decentralization, but it’s clear that the first and foremost goal is to replace their current token with an ERC-20 token, but that the management of the token will largely be conducted through the central authority that is UNIKRN. Will that have a negative impact on the price of the token? Probably not. Is it therefore OK to base your interest in a given token purely on how you think that token will perform on exchanges – irrespective of whether it follows the so-called tenets of the promise of a decentralized blockchain? Because I’ve never been a fundamentalist in any sense of the word, I believe it is. But ultimately, it is a decision you will need to make for yourself.